THE CHANCELLOR OF THE EXCHEQUER
Sir, I rise to make the Motion of which I have given notice for the appointment of a Select Committee to inquire into the operation of the Bank Act of 1844, the 7 & 8 Vict. c. 32, and of the Bank Acts for Ireland and Scotland of 1845, the 8 & 9 Vict. c. 37 and 38; and also to inquire into the law relating to Joint-stock Banks. In order to understand the operation of the Act of 1844, it is necessary to go back to the time of bank restriction, and to consider the policy of the measure which was proposed and carried by Sir Robert Peel in 1819. By means of that Act the value of the currency was restored, after a long period of suspension of cash payments during the French war, and the currency was fixed upon a firm and legiti- 260 mate basis. The principle established by that Act was the convertibility of banknotes for gold at a certain fixed value; and I trust that the time will never come when that principle will be called in question by this House or by the country.
The question has sometimes been asked—what is the meaning of a pound note? and it has been thought that some difficulty exists in finding an answer to that question. But it appears to me—with great deference to the various able and accomplished persons who have discussed the matter—that no interrogatory admitting of a more simple and satisfactory answer ever was asked. What is the meaning of a pound note? It is simply a promise to pay on demand to the bearer, at the place where the note is issued, the sum of one sovereign. No mystery is involved in the answer to that plain question. A bank note is a promise to pay a definite sum in coined money of a known weight and value; and if that promise is not fulfilled a contract is broken and a fraud is committed. I think, therefore, it cannot be denied with truth that the convertibility of a bank-note is a plain question of contract, that it rests upon principles of honesty which must be recognised not only by every speculator, not only by every political economist, but by every man of plain sense and understanding; and I cannot believe that the time will ever come when any large, when even any small portion of this House, or when any considerable portion of the people of this country will seriously contest the validity of that principle. I can conceive that a Government may, in order to overcome a temporary deficiency, issue for a time inconvertible paper, and may meet a financial pressure by discharging its engagements in promises to pay, which promises it is unable to fulfil; but I confess I am at a loss to understand the opinions of those persons who believe that the wealth of a country can be increased, and that the trade of a country—resting, as it does, upon credit—can be benefited by the issue of mere promises to pay, which promises the issuer is not bound to fulfil. I repeat, therefore, the expression of my hope that the principle upon which the Act of 1819 is founded, of the convertibility of paper for gold, will never be seriously contested by any party or person in this House. But in the course of time it was found that the Act of 1819, although it established this important principle, did not in all 261 cases provide effectual securities for its enforcement. Excessive issues of paper were made from time to time by country banks, and sometimes by the Bank of England, and although notes were always convertible by law into gold, it happened in many cases, upon the failure of country banks, that they were not convertible in fact. The credit of the Bank of England was never in truth impeached; but it was contended that its issues were sometimes excessive, that its reserves of bullion were not always sufficiently great to support public confidence; and accordingly Sir Robert Peel, acting under the advice of a Committee, presided over by my right hon. Friend the First Lord of the Admiralty (Sir Charles Wood), proposed in 1844 the Act which I am about to ask the House to refer to a Select Committee. The policy which Sir Robert Peel announced that he intended to enforce by that Act was not merely the convertibility of banknotes and the legal liability of their issuers to pay them, but also, by imposing certain conditions as to their issue, the provision of effectual securities against their over issue, and their consequent depreciation. Now, I freely admit that, in proposing the restrictions embodied in the Act of 1844, Sir Robert Peel sought to establish a principle in which the presumption lay against him. He attempted to impose restrictions upon the banking trade; and I quite concur with those persons who hold that any one who seeks to impose limits and restrictions upon the banking trade comes forward with a presumption against his policy, and is bound to establish a strong case of expediency or necessity. In my opinion Sir Robert Peel did establish a strong case. His view, I apprehend, was this; when a bank such as the Bank of England is empowered by the Legislature to issue notes; when those notes circulate freely from hand to hand; when they are invested by Act of Parliament with the attribute of being a legal tender; when the Legislature, in fact, confers upon the Bank the power of issuing paper which, whatever theorists may say, practically discharges the functions of money, the Legislature is justified in imposing certain conditions upon the exercise of that power. That was the principle by which Sir Robert Peel justified the restrictions he imposed by the Act of 1844. Much subtle discussion has been raised on the question of what is money—whether bills of exchange and commercial instruments of that nature are to be con- 262 sidered money—whether the term should be confined to paper instruments such as bank-notes, and whether even the title of money should be refused to bank-notes, being a legal tender. It would be quite out of place for me in a practical assembly such as the House of Commons to occupy time upon the discussion of such questions; and I trust the House, in debating this subject, will not think it necessary to go into questions of the theory of currency, with respect to which, I need scarcely inform hon. Members, a number of volumes sufficient to fill the shelves of a large library has been written. But I may be permitted to say that it seems to me a practical question for our consideration whether or no a bank-note does not deserve the name of money. If a bank-note enables a person, who is unknown, upon presenting it wherever he goes in the country to make a legal tender, without reference to his individual credit or character, it appears to me that such an instrument is fully entitled to the name of money, and practically discharges the same functions as sovereigns. If that be the character of the bank-notes issued by the Bank of England, I cannot help thinking that a justification arises for the Legislature to impose such restrictions as the public advantage may demand on the extent to which such bank-notes may be issued. Sir Robert Peel, by the Act of 1844, for the first time placed on the discretion of the Bank of England certain limits with respect to the issue of banknotes. The bank was by that Act restricted to the issue of £14,000,000, represented by a similar amount of securities, and so much more as might be equal to the quantity of bullion in possession of the Bank. Beyond these limits the Bank of England under the present Act is not entitled to go, with the exception of a small addition which I shall afterwards mention. The policy of the Act of 1844 was, therefore, in general to impose such restrictions on the discretion of the Bank of England in regard to the issue of money as would practically secure its maintaining such a reserve of bullion as should at all times be equal to the demands of the public for the conversion of its notes into gold. I think a fairer test cannot be taken of the practical success of that Act than by comparing the quantity of gold held in reserve by the Bank of England for ten years prior to 1844, and for ten years subsequent to that Act. If the House should find that there has been a great increase 263 in the average quantity of gold held by the Bank of England in reserve since 1844—if the House should find that the maximum quantity and the minimum quantity and the averages also have been greater, the conclusion must naturally be arrived at that that Act has accomplished the object for which it was designed. The contrast is so decided and immediate on the change of legislation that it could not be attributed in any considerable degree to an increased supply of the precious metals, and of gold principally, in late years. It was quite conceivable that, though the supply of gold increased, the Bank might not have thought it necessary to keep a larger reserve unless the legislative restriction, to which I have already alluded, had been in operation. I hold in my hand a statement of the highest, lowest, and average amount of bullion in the Bank of England, from the year 1834 to the present time, and I will read to the House some of the principal results. In 1843, the average amount was £11,700,000 in round figures, being the highest amount during the ten years prior to the Act of 1844. The average amounts for the other years were, in 1834, £8,000,000 (omitting all the figures after the millions); in 1835, £6,000,000; in 1836, £6,000,000; in 1837, £5,000,000; in 1838, £9,000,000; in 1839, 1840, and 1841, £4,000,000; in 1842,£8,000,000;and l843,£11,000,000. In the first year after passing the Act, the average amount of the bullion in the Bank of England was £15,000,000, and in 1855 it was £14,000,000. In 1847, which was the year in which the average was lowest, the average amount was £10,600,000, and the minimum amount was never under £8,000,000. After that year the average amount rose to £14,000,000, 16,000,000, and in 1852 to £20,000,000. In 1853, it was £17,000,000, and in 1854, £14,000,000. Therefore since 1843, the lowest average was £10,600,000, and the highest £20,500,000, whereas before 1843 the highest average was £11,700,000, and consequently the lowest average since 1843 did not very much differ from the highest average of the preceding period. These figures cannot, I think, fail to convince the House that, assuming that the main object of the Act of 1844 was to increase the average reserve of bullion in the Bank of England, that object had been very completely attained.
There is another part of that Act to which I must advert briefly—the separa- 264 tion of the issue and banking departments which was then effected. That separation was an essential part of the Act of 1844, and was then introduced for the first time. The effect of the separation is, that the accounts of these two departments are kept separately, and that for practical purposes, while the management of the Bank proceeds in its ordinary manner, these two departments are managed independently of each other. An inquiry into the legal operation of this part of the Act is not of a very practical nature; but in order to avoid misunderstanding, it ought, perhaps, to be stated—that, in the event of the insolvency of the Bank of England—a contingency not very likely to occur,—it is held by those most competent to form an opinion on the subject, that all the creditors, both note-holders and depositors, would have equal rights and equal claims on the general assets of the Bank. In such a contingency the funds of the Bank would be considered as one, though, for the practical management of the Bank, and for the purpose of measuring its issues, which was the object the framers of the Act had in view, the separation of the two departments is complete.
I now come to the effects of this Act as developed during the successive years that have elapsed since it was passed into law. And, first, I will venture to call the attention of the House to what occurred in the year 1847. In that year the operation of this Act underwent an important trial. Commercial distress of a very aggravated kind was then experienced; and the Bank of England was subjected to a heavy pressure for the purpose of inducing it to extend its advances and discounts for mercantile purposes. The Bank found itself restrained by the limitations which had been imposed upon it by the Act of 1844. Application was in consequence made to the Government of the day, of which my noble Friend the Member for the City of London (Lord John Russell) was the head, and my right hon. Friend the present First Lord of the Admiralty was the Chancellor of the Exchequer, on the subject; and the consequence was that, after much deliberation, they issued a letter authorising the Bank of England to increase its advances upon approved securities, and assuring the Directors that if that course led to any infringement of the law the Government would apply to Parliament for an indemnity. However, the provisions of the Act were not infringed, the Bank of England never being called on to extend its issues beyond 265 the limits settled by the Act of 1844, and the Government were never necessitated, consequently, to apply to Parliament for an Act of Indemnity. Nevertheless, on the meeting of Parliament a Committee of Inquiry into the matter was proposed, and the subject underwent a full discussion in this House for several nights. A Committee, composed of some of the ablest Members, sat and examined witnesses, and came to a Report, to one or two passages of which I will call the attention of the House. The Committee report—Your Committee have had under their consideration whether it is advisable that powers should be conferred by law upon the Government to enable them to meet the occurrence of any circumstances which may call for extraordinary interference; but they have come to the conclusion that, looking to the impossibility of foreseeing what the precise character of the circumstances may be, and also what may be the measure best calculated to meet them, it is more expedient to leave to those with whom the responsibility of the Government may rest at the time to adopt such measures as may appear to them best suited for the emergency. Your committee, therefore, after a careful review of all the evidence, are of opinion that it is not expedient to make any alteration in the Bank Act of 1814.A Committee was also appointed, at the same time, by the other House of Parliament, and that Committee also, I believe, declined to recommend any alteration of the Act. The question, at all events, was considered by the other House of Parliament, and the whole matter underwent their full consideration at the time when those circumstances occurred, and the law was left unchanged. I have taken the liberty of recurring to those events for the purpose of suggesting to the House that, inasmuch as the facts of the crisis of 1847 were very fully investigated at that time, there seems no occasion at present for the appointment of the Committee which I am about to move to reinvestigate the circumstances of that period, or to do anything more than to consider the operation of the Act at that time, as shown in the evidence and reports of that period with a view to estimating its general policy. The subject that will more justly engage the detailed attention of the Committee is the operation of the Act since 1847 to the present time. During that interval we have had an arduous war, which has led to great exportations of bullion for foreign service. We had a transition from war to peace. We have also had to encounter changes in the monetary system in some of the continental countries which have substituted a 266 gold for a silver currency. The failure of the silk crop in Italy and France this year has led to a great increase in the importations of silk from the East, and has rendered necessary a great increase in the exportation of bullion. All these were disturbing causes of the first magnitude in the monetary world, and yet we have found that the currency of this country, under the tutelary influence of the Act of 1844, has remained in a sound state, that the credit of the Bank has never for a moment been in question, and that it has not experienced any real or pressing difficulty in maintaining the large reserves of bullion which I have already stated to the House. In estimating the effect of that Act I trust that the House and the Committee will bear in mind that it has had no ordinary difficulties to contend with; that the period during which it has been in operation has not been what is called a normal period; that it has not been an ordinary state of peace; but that our currency system has been exposed to severe trials, and that out of those trials it has emerged triumphant.
Now, Sir, as I was aware that we should have to consider in the course of the present Session the renewal of the privileges of the Bank of England for another term of years, and at the same time the expediency of either allowing the provisions of the Act of 1844 to remain unchanged, or of introducing certain amendments into its provisions, in the course of the autumn I placed myself in communication with the Governor of the Bank of England, in order that I might ascertain whether he or his colleagues were of opinion that any alterations should be made in the existing Act. Being them selves practically acquainted day by day with the working of the Act, and especially acquainted with the effect of its restrictive provisions, they cannot be considered as other than fair and competent judges of its operation. With the exception of, I think, not more than one Director, they have given their opinion that it is not expedient to make any material alteration in the provisions of the Act. In fact, they have not been able to suggest to me any considerable improvement which it would be desirable to effect in that measure. I therefore, Sir, assume that the principle introduced by that Act—namely, the imposing of some legislative limit upon the issue of the Bank of England, is to be taken as established. Those who contest the policy of the Act admit in general terms that principle. I may 267 refer particularly to a gentleman of whom I speak with sincere respect, Mr. Tooke, the author of the well-known book On Prices—a book which is a most valuable contribution to the economical history of this country. Well, Mr. Tooke is a strong opponent of the Act of 1844, yet he proposes a principle of limitation—a principle, it is true, different from that laid down in the Act, but still a limitation which would involve a restraint upon the discretion of the Bank. And I am unable to find that there is any considerable number of practical persons engaged in banking or mercantile affairs, and acquainted with the operation of the Act, who propose to do away with all legislative limit, and to return simply and without qualification to the Act of 1819.
Well, then, if we assume that principle as granted, there are certain other points which are fairly open to consideration before the privileges of the Bank of England are renewed for another period. There is one objection which has been made very frequently during the last half year, upon the conduct of the Bank. It has been said that through the indiscretion of the Bank Directors, or in consequence of the operation of the Act, there has been an inconvenient fluctuation in the rates of discount, and that that inequality has been produced by circumstances which legislation could have prevented. Now, Sir, I must be permitted to state my confident opinion that the Bank of England Directors are not answerable for the inequalities in the rate of discount; that the rate of discount is regulated by causes over which they have little control; and that in raising and lowering the rate of discount the Bank Directors follow and do not lead. They are not the regulators of the rate of discount in this town. The amount of Bills discounted by them is in the aggregate less than those discounted by private houses. They have it not in their power either to increase or diminish the rate of discount. It is something which is governed by causes of a peculiar and independent character. It does not vary according to the general rate of the interest of the country, as some persons suppose. If anybody will take the trouble to compare the price of Consols with the Bank rate of interest he will find that when Consols remain stationary, when the rate of money lent upon real securities remains quite stationary, the Bank rate of discount and the general rate of discount for mer- 268 cantile purposes in this metropolis may undergo considerable fluctuations. It is a mode of employing money which is liable to certain influences; it has a territory of its own which is governed by causes, I will not say independent of, but to a great extent unconnected with, those which regulate the general rate of interest in this country. I have before me a very detailed account of the fluctuations in the Bank rate of discount. It is impossible for me to read the whole of it to the House, but I will state what appears to me to be the general result—which is that when the Bank rate of discount is the highest the amount of bills under discount is for the most part very large; and when the Bank rate of discount is low the amount of bills under discount at the Bank is for the most part less considerable—a fact which shows that pressure is made upon the Bank for discount when its rate of discount is high, and that far less pressure is made upon it for discount when its rate of discount is low. The result seems to mo clearly to establish that the Bank is not the regulator of the rate of discount. If the greatest number of applications are made to it when its rate of discount is highest, it is clear that it is because the general rate of discount is high, that persons desirous of having their bills discounted cannot get more favourable, or as favourable terms elsewhere, and therefore they crowd to the Bank of England. When the Bank of England rate is low, the rate elsewhere may perhaps be even somewhat lower. That fact, I think, must be considered as conclusively exonerating the Bank from the charge of having augmented commercial distress by their indiscretion with respect to the management of the rate of discount. It shows, also, I believe, that, whatever faults the present Act may have to bear, it cannot be justly blamed for having created any unnecessary hardship with regard to the fluctuations of the rate of discount during its time.
The next question, I think, which ought to engage the attention of the Committee is, that of the precise limit which should be fixed upon the issue of notes by the Bank. The limit was originally fixed by the Act at £14,000,000; but since that time an Order of Council has been made, under a clause in the Act, by which the Government is empowered to authorise the Bank to issue in addition to the £14,000,000 upon securities two-thirds of the amount which may have been aban- 269 doned by the country banks. Now, the amount abandoned by the country banks since 1844 is about £712,000. The additional sum which the Bank can issue in consequence of that Order of December, 1855, is £475,000; therefore, it is at present empowered to issue notes to the amount of £14,475,000. It has been suggested that this limit is capricious and is too narrow, and that it might with advantage be enlarged. Now, Sir, with regard to the point at which numerical limits are fixed, it is very difficult to give a conclusive reason why any particular sum has been selected. When it is once admitted that a limit is to be adopted, it is necessary to fix upon some sum at which the line shall be drawn, but it would be very difficult to give a reason why it should not be a little more or a little less. In the case of a duty of 1s., it would generally be difficult to show why it should be that precise amount, and not either 11d. or 13d. In the present instance the amount of £14,000,000 was taken as representing the lowest amount to which it was thought the currency might descend, and I believe it has, in the operation of the Act, with the addition of the £475,000 I have mentioned, been found not an inconvenient amount. Those persons who desire to raise this limit to about £16,000,000—which is the increase which has been most recommended—have it, I apprehend, in view that such an alteration would enlarge the issues of the Bank and the paper currency of the country by the amount of about £1,500,000. My belief is, that an extension of the limit to that extent would have no such effect, but would simply enable the Bank to keep a million and a half less gold. The issues would not be increased, because they are already sufficient to meet the wants of the trade of the country; and the only result, in my opinion, of allowing the Bank to increase their paper circulation would be that they would effect a proportionate reduction in the amount of their bullion. That would be, as far as I can see, the practical operation of the extension proposed, and entertaining that belief, in any measure which I now have in contemplation, it is not my intention to propose any alteration of the limit which is now fixed by law, and which may, in round numbers, be taken at £14,500,000. At the same time I quite admit that it is a subject fairly within the consideration of the Committee; and I need not say that if the House should do me the honour of appointing me 270 a Member of that Committee, I shall be fully prepared to go into the inquiry with the view of seeing whether any public benefit would arise from the enlargement of the limit.
There is another point which is referred to in the Report of the Committee of 1848, and which is generally mentioned in connection with the policy of this Act. I mean the question whether, as a legislative limit is to be imposed upon the discretion of the Bank with respect to the issue of paper, power should not by law be vested in the Government to dispense with the restriction, and to enable the Bank in extraordinary circumstances to depart from the provisions of the Act of 1844. I confess that I am hostile to any such provision. It appears to me that not only is the Government empowered, but it is required by the maxim Salus populi suprema lex—by the duty incumbent upon all Governments to interfere at critical moments—should it think that the public interests necessitated such a step—to depart from the provisions of the law, and afterwards to come to Parliament for an indemnity—the course which was contemplated in the year 1847. In support of that opinion I will take the liberty of referring the House to a remarkable precedent in the year 1797 on the occasion of the Bank restriction. In consequence of the demands which were made upon the Bank for foreign loans and for the military service of the year, the bullion in the Bank was at the commencement of the year 1797 reduced to a very low ebb. The demands upon the Bank increased; the reserve of bullion diminished during the month of February, until at the end of a certain week in that month it was found that matters had become urgent. Parliament was sitting at the time, but Mr. Pitt thought the affair so pressing that, after communicating with the Bank authorities on the Saturday, he convened a Council on the Sunday. On a certain Sunday in the month of February, 1797, an Order in Council was agreed to restraining the Bank from paying in specie; and on the following day, Monday, Mr. Pitt brought down a message from the Crown informing Parliament of the step which had been taken, and explained it to the House. I think that precedent, the legality of which has never been questioned, although the policy of the Bank restriction has been much disputed—an example set by Mr. Pitt, who was very careful of constitutional precedents—must convince the 271 House that there does inhere in the Executive Government a power of meeting emergencies of this kind which they are called upon to exercise upon their responsibility, however arduous that responsibility may be; and it appears to me that it will be better to leave the matter in that state than, by attempting to allow a discretion by the Act itself, to confer upon the Executive Government a dangerous power of at any time interfering with the action of the established monetary system of the country. Although I fully admit that the subject is one which may properly be inquired into and considered by this Committee, it is not a provision which I should advise them to recommend. Therefore, the course which I am prepared to adopt is this, subject to any amendments of the law which the Committee should suggest for consideration, within the limits which I have sketched:—I shall, at the proper season, be prepared to introduce a Bill renewing the privileges of the Bank of England for another period of ten years—the same period as that which is now about to expire.
There are also questions as to the Bank of Ireland, and the case of the Banks in Scotland. Those banks are now regulated under the provisions of the Acts passed in the year 1845. The Bank of Ireland possesses no peculiar privileges; all that it seeks is a renewal of its corporate character, together with the removal of a restriction imposed upon it by an Act passed in the reign of George III., which seems to me quite unnecessary at the present day—namely, a prohibition against the lending of money upon mortgage. The Bank of England is empowered by law to advance money upon real securities, which power it exercises up to a certain limit. It is well known that loans upon real securities are not in general prudent investments for a bank. The Bank of Ireland does not wish to exercise this power to any large amount; they seek relief from the absolute restriction to which they are now subject, and the demand seems to me to be a reasonable one, provided that the amount which they should be empowered to lend on such security should be limited by the Act. With regard to the Scotch banks, I have communicated with the directors of the six principal Joint-stock Banks in Scotland, with the view of ascertaining whether they can suggest any alterations in the law by which they are at present governed. I have not received from them suggestions for any 272 material change in the existing law, and do not find that the operation of the present Act has been complained of.
I have now called the attention of the House to what seem to me the most important questions involved in the Act of 1844, and which will require consideration from the Committee. It is of the utmost moment to the country that its currency should rest upon a sound basis. On the soundness of its currency the trade, the industry, and the credit of the nation depend; and no effort should be spared to maintain in their integrity such provisions of the law as secure so valuable a blessing, and so great a source of wealth and prosperity. But there are other questions connected with this subject which, although subordinate in their importance, yet deserve, and I hope will receive, the attentive consideration of the Committee. I allude to the arrangements subsisting between the Bank of England, in its relation of a banker, and the Government—that is to say, with regard to the deposit of the public money in the custody of the Bank of England, and also with regard to the management of the national debt. The pecuniary relations subsisting between the Bank and the Government do not, like the subject of the currency, affect the interests and fortunes of trade and production. Nevertheless, within their limited sphere they are of undoubted importance. Under the existing Act the Bank of England now pays about £188,000 annually to the Government for the privilege of issuing notes. I think £120,000 is the sum fixed by the Act, in addition to which the Bank pays £60,000 a year for stamp-duty, and another trifling item of £8,000, making the total amount which it pays to the Government, in connection with the paper currency, £188,000. The profit derived by the Bank of England from the currency may be calculated upon different principles, and it is perhaps not very easy to decide its precise amount; but the highest estimate that I have heard places it at about £170,000, and the lowest at about £80,000. The Government, therefore, receives from the Bank a larger sum than that made by the Bank in the shape of profits. In addition to its duties in respect of the issue of notes, the Bank also undertakes the management of the national debt. The scale of payment made for that service is prescribed by Act of Parliament. They are paid at the rate of £450 per £1,000,000 for every part 273 of the national debt not exceeding £400,000,000; £340 per £1,000,000 for every portion between £400,000,000 and £600,000,000; and £300 per £1,000,000 for all above £600,000,000. This is the scale fixed by Act of Parliament; but it will be open to the Committee, in connection with the general question of renewing the charter, to revise the terms upon which the privileges of the Bank shall be continued. I may also state, that I am now in communication with the Governor of the Bank of England on the subject of the pecuniary arrangements subsisting between the Government and that corporation. Upon the result of that communication it may depend whether or not the Government will deem it advisable to propose any modification in the terms of the present arrangement. If such a modification should be thought expedient, and it is likely to receive the assent of the Bank, the Government will of course bring the matter under the consideration either of the House or of the Committee.
I have been compelled to trouble the House at, I fear, a wearisome length on this question; but the matter is one of so much importance to the whole community that I have preferred to appear to be unnecessarily tedious rather than to withhold anything which might be essential for the information of hon. Members. Before I sit down, I have only to add that the subject of Joint-stock Banks has, from circumstances well known to every hon. Gentleman, attracted a great degree of public attention during the last twelve months or more. Some of those establishments have failed under circumstances which have led to a great amount of public comment, and produced the most disastrous consequences to their unfortunate shareholders. It therefore appears to me that the subject is one well worthy of investigation before a Committee of this House. The procedure by which the affairs of insolvent Joint-stock Banks are wound up is anything but satisfactory. Suggestions have been made—although I confess that I am not one of those who approve them—for the substitution of an inspection of the state of their affairs by a Government officer for the vigilance and control of their own directors. I, for one, greatly deprecate any attempt to improve the management of Joint-stock Banks, or any other mercantile undertakings, by weakening the motives for vigilance and caution on the part of those 274 directly interested in such enterprises by holding out the shadowy safeguard—for, after all, it never can be any real protection—of Government inspection. However, this is one of those matters which may fairly receive the attention of the Committee. I freely admit that there is a great dissimilarity between the question of Joint-stock Banks and the all-important subject of the currency, which will constitute the main topic for the investigation of the Committee. Still, it appeared to me that it would be difficult to form two Committees, to sit both at the same time, on subjects as closely related to each other as the affairs of the Bank of England and the currency generally, and the state of the law of Joint-stock Banks. On the other hand, I think it would not be expedient altogether to omit to consider the question of Joint-stock Banks, and I therefore propose that it be submitted to the same Committee.
Motion made, and Question proposed—
That a Select Committee be appointed to inquire into the operation of the Bank Act of 1844 (7 & 8 Vict. c. 32), and of the Bank Acts for Ireland and Scotland of 1845 (8 & 9 Vict, c. 37 and 38); also to inquire into the Law relating to Joint-stock Banks.
§ MR. DISRAELI
Sir, if it be desirable that both of the subjects brought under our notice by the right hon. Gentleman should undergo the investigation of a Select Committee, I think it would be very unwise that they should both go before one and the same Committee. Between the currency and Joint-stock Banks I see no such necessary connection as would render it expedient to refer them to one and the same tribunal; and, moreover, the question of Joint-stock Banks has by itself attracted the greatest amount of public attention, and is likewise one of sufficient difficulty and importance to demand the undivided labours of a Committee. But, I must further observe that, after listening to the statement given by the right hon. Gentleman of the intentions of the Government respecting the currency and their relations to the Bank, I am really at a loss to understand what are to be the duties of the proposed Committee on that important subject. The Government appear to have entirely made up their minds on every point of moment connected with the question before us; and surely, therefore, it would have been preferable for the right hon. Gentleman at once to introduce a Bill embodying his views, and thus to afford the House an opportunity of expressing its 275 approval or disapproval of them. With the exception of one solitary point, of no very great moment—namely, whether the Bank of Ireland should have permission to lend money on mortgage—the Government, according to the speech of the right hon. Gentleman, have clearly made up their minds on the whole question which they now wish to refer to a Committee; and, therefore, the course he proposes to us is equally unsatisfactory and futile. Where the questions are of such a nature as those on which the right hon. Gentleman has touched, and on which the Government also entertain a very decided opinion, the proper arena for investigation is the whole House. The Ministers have a policy which they are no doubt prepared to support. Then, why do they not at once boldly submit it to the verdict of this House? I question very much the propriety of referring the Bank Act to a Select Committee, and I should much prefer that the Government should lay before us their matured views in the shape of a Bill, which would be discussed and criticised by all those hon. Members who take an interest in the subject, and the Government would then be able to defend the policy which they recommend. Of course, on such a subject I shall not attempt to divide the House should there appear to be a predominant feeling in favour of adopting the proposed course; but I beg the House to consider whether it would not be more advisable, as I have suggested, that the Committee on Joint-stock Banks should be confined to that topic, and that the renewal of the Bank Act should be brought before us in the shape of a Government Bill, which could be discussed in this House.
§ MR. TITE
said, that in the course of last Session he had addressed a question to the right hon. Gentleman (the Chancellor of the Exchequer) with regard to the course he intended to take on this subject, and the right hon. Gentleman said he could give no pledge as to what course he would take; but that he had no objection to any private Member bringing the matter forward. He (Mr. Tite) therefore believed that he should have been the person to introduce the subject to the House. He was glad, however, to find that the subject formed one of the topics in the Speech from the Throne. He could not help, however, imagining, when he read the manner in which it was referred to, that Her Majesty's Ministers had come to a foregone conclusion upon it, and he was confirmed 276 in that opinion by the speech which they had just heard from his right hon. Friend the Chancellor of the Exchequer. Although not very intimately connected with the monied interest, he had all his life paid great attention to the question of the currency, and in his opinion the Chancellor of the Exchequer had given a very feeble explanation of what occurred in relation to this subject in 1847. In the Report of the Committee which had been appointed by the House of Lords to consider the occurrences of that year it was resolved that the panic of that year was mainly attributable to the operation of the Bank Act of 1844, and that the money market had been affected in consequence of the fluctuations in the rate of discount which arose from the unwise reductions they made as soon as that Act passed. The Report of the Committee of the House of Commons was in direct opposition to that of the Committee of the House of Lords; but, although the Report of the Commons' Committee, when brought up, was agreed to by a bare majority, yet there were opposed to the principles of the measure men of the highest eminence, who had come to the conclusion that the difficulties of that period were very much aggravated by the operation of the Act of 1844. The same opinion with regard to it was held out of the House by men of great eminence. Indeed it could not be denied, that never did the opinion of statesmen, of commercial men, bankers, and others, holding so deep a stake as they did in the question, differ more than it had done with regard to this intricate though important subject. The opinions of those who opposed the Bill were, he would admit, directed, not so much against its principle as against the arrangements it prescribed; for Mr. Tooke, amongst others, laid it down that convertibility was the cardinal principle of all paper currency. In the Committee of 1848, Mr. Hume and Mr. Herries divided the House against Sir Robert Peel, and certainly made a very strong case for the repeal of the Act. One element ought especially to be taken into consideration as one of the greatest disturbing causes of the money market, and that was the enormous amount of bills of exchange, inland and foreign, in circulation, which he believed reached no less a sum than £200,000,000—certainly not less than £180,000,000. The effect of that circulation ought to be distinctly inquired into, because if the small lever of the Act of 1844 was to move this weighty 277 mass, the machinery used ought to be more nicely calculated; but at present the operation of the Bank Act might be compared to a steam engine without a fly-wheel—it was exposed to continual jerks in the course of its working. Then the changes in the rate of interest, so numerous last year, were due to its operation; there had been no less than nine changes in the rate, and the frequency of such changes was to be attributed to the operation of the Act of 1844. A great mistake was made in that Act, which had the effect of cutting the capital of the Bank in half. Making the Bank of England a bank of issue and a bank also of an ordinary character, caused a great deal of mischief, and was one cause in the fluctuations in the rate of discount. It was stated by the Chancellor that the balance in the Bank coffers in 1849 was £8,000,000. So it was, but it was composed of the gold in the bank of issue and the reserve, and it was perfectly well known that at the time of the issue of the Government letter, which restored the confidence of the country, there was only £6,000,000 in bullion in the Bank of England, and £750,000. reserve. The cause of those jerks in the rate of interest was that in the banking department the fluctuations were exceedingly great, but if the capital were not, it would be infinitely more regular. Take as an instance. In 1844, the whole sum in the Bank was £15,000,000; but in 1845, after the Act of 1844 came into operation, the amount of reserve in the banking department was only about £5,700,000, while in the issue department there was £8,300,000, making together £14,000,000. Thus there was in the banking department a fluctuation of something like £9,000,000, while, if the capital had not been cut in half it would only have amounted to a difference of about £1,000,000. There was extremely little variation in the yearly issues of the Bank, and, indeed, it had almost assumed a mathematical precision, and it had been found that as nearly as possible the yearly average of issues amounted to a fixed quantity. The amount the Bank of England had in circulation was almost always £20,000,000; and although it had been known upon one occasion to have fluctuated to the extent of £5,000,000, yet that was as far back as 1852, and since then it had been extremely regular. The next disturbing cause which he thought ought to receive the serious consideration of the Committee was the enormous amount of gold introduced into the country since 1848, consequent upon 278 the discovery of the Australian and Californian gold fields, and which had exercised an enormous influence upon the currency. He believed that since 1848 the whole amount was correctly estimated at £175,000,000—most certainly the amount introduced into this country exceeded £135,000,000. Nor was the disturbing cause of such an element limited to the gross amount received in the country extending over a number of years; for in itself it was subject to enormous fluctuations. In some quarters of the year not more than £1,000,000 had arrived, in others as much as £3,000,000. All this had an enormous effect upon the regulation of the discount of the Bank of England, and ought most certainly to be taken into consideration by the Committee. No doubt to a certain extent the value of gold was subjected to the same laws of supply and demand which ruled the price of everything else; but the moral influence of the Bank of England alone was extremely great, and they exercised the most important influence on the affairs of the world, by the mere raising or reducing the rate of interest. Now, in reference to the crisis of 1847 the Bank of England had sunk their discount from 4 to 2½per cent, and therefore the Bank, in its capacity as an ordinary bank, became immediately a competitor with the commercial world, and therefore, when they brought their discount down to 2 per cent, they brought down the discount of the whole commercial world. What ensued? A plethora of capital in hand, which led to the wildest speculations, particularly in building, which continued for several years. The Bank had now found it necessary to raise the rate of discount excessively, the consequence of which was the ruin and bankruptcy of many large firms, an entire stop to building, and the consequent throwing out of employment of many thousands of workmen. That was the cause of so large a number of unemployed workmen in London at the present moment. Again the Committee, when formed, should look narrowly into the constitution of the Court of Directors of the Bank, which at present appeared to be of the most inconvenient and objectionable kind. The question of fixing the rate of interest and the general regulation of the circulation was determinable by the majority, the consequence of which was, that what had been done one week might be upset the next. There were twenty-four Directors, sixteen of whom constituted the Board, and eight 279 retired annually, their places being filled by the remaining eight who had not been acting for the year; and thus, when the pressure of 1847 first began in April, eight of the Directors, who had for twelve months been engaged in deliberations respecting it, had to give way to men who had not been called upon to study the question. All these considerations he was sure the Committee would enter into, and he hoped that hon. Members who took an interest in the question would have an opportunity of stating their opinions before the Committee when constituted.
§ MR. H. BAILLIE
said, he did not understand the Chancellor of the Exchequer to express any opinion respecting the details of the Act he was about to bring in; but, on the contrary, he expressed his intention to reserve the opinion of the Government until the Report of the Committee had been laid before the House. If that were a correct understanding of the intention of the right hon. Gentleman, it was certainly of the most serious importance that a thorough understanding should be come to respecting the powers of the Committee and the nature and limitation of the inquiry. The opinions of men upon the advantages of restricted and unrestricted banking were quite as much opposed to each other as the opinions of Protectionists and Free-traders were. The right hon. Gentleman, in the course of his speech, had referred to the opinion of the late Sir Robert Peel upon this question; but he stopped very short of expressing the real views of that right hon. Baronet. Anybody who remembered the discussion which took place in 1844 would know very well that Sir Robert Peel never considered the Act a final measure. When he introduced the Bill he stated distinctly that he intended to carry it much further; that his ultimate object was that there should be only one bank of issue. He pointed out with great distinctness the manner in which he intended to arrive at that result. He knew it to be understood by the private bankers in the country that the privilege of issuing paper would only be conceded to them for ten years, and he invited all those who were disposed to give up that privilege to do so by accepting an annual payment of 1 per cent. on the amount of notes they withdrew from circulation. A number of bankers accepted that proposition, clearly understanding that all the issues of private banks would cease on the termination of the charter. Those private bankers 280 were now placed in a very disadvantageous position, as compared with others who did not accept the proposition, but who, since the expiration of the period in question, have gone on issuing notes. He knew three private banks who issued no less than £1,000,000 of paper. When they considered the present interest of money and the advantages derived by those banks which did not agree to the terms of Sir Robert Peel's proposition, he thought it would be for the Committee to take their case into consideration, and state whether, in their opinion, the banking system of the country was to stop short, as it at present did, or whether, on the contrary, all private banks ought not to be put in the same position in which they were before the passing of the Act of 1844. He quite agreed with his right hon. Friend the Member for Buckinghamshire, that the question of Joint-stock Banks ought not to go before the same Committee, and that the Committee would have quite enough to do if it was limited to the consideration of the Bank Charter Act.
§ MR. GLYN
said, he thought the suggestion of the right hon. Member for Buckinghamshire, that two Committees should be appointed to inquire into this important subject, well deserved the consideration of the Chancellor of the Exchequer. When they considered the nature of the inquiry which was to be submitted to the Committee, including the embarrassing question of the whole currency of the United Kingdom, and involving the nicest points of law, and when they reflected that the committee would be called upon to lay before the House a new commercial code affecting the whole banking business of the country, he thought it would be evident that an investigation of such magnitude would be much more satisfactorily and speedily conducted by two committees than by one. The Chancellor of the Exchequer had referred at some length to the question of convertibility. He (Mr. Glyn) had always considered that the question of the currency and of the Bank privileges was most unnecessarily mixed up with the question of convertibility, with the intention, as he thought, of throwing a slur upon those who did not assent to the Act of 1844, but whose object was, if possible, to improve the principle laid down in that Act by extending rather than diminishing its operation. He would not enter at length into a consideration of the Act of 1844, for he had no doubt the House would assent to the Motion of the Chancellor of 281 the Exchequer, and the subject itself was a very dry one. He might observe, however, that he had always regarded that Act as dividing itself into three parts, distinct from each other, and operating very differently with regard to the public welfare. The first important portion of the Act provided for the separation of the issue and banking departments; the second for the limitation of the amount of circulation advanced upon securities; and the third laid down regulations affecting country banks. With regard to the first of these provisions he did not hesitate to say, although he knew it was rather an unpopular doctrine, that, though he had always been an advocate for the separation of the two departments, he regretted that the machinery for regulating those departments had not been left in the hands of the Bank of England. If there had been statutory regulation giving to them the management of the circulation of the country, the duty might have been still in their hands. Their power and capital were great, and, having the command of the Government balances, they would have been in circumstances to carry on all the necessary operations. But the Bank of England themselves rejected that view of the matter, and by accepting the Act of 1844 they had prevented all chance of a return to that state of things. The question could no longer be argued as it was in 1844, for there were now other bodies who might step forward and say, "Why not intrust the duty to us as well as to the Bank of England?" As to the third point (which he would notice before referring to the second),—viz., the regulation of the country bank issues—he was not aware that there was any such compact entered into with them as the hon. Member opposite (Mr. Bailie) had alluded to. But, whatever the case might be, the renewal of the Bank Act could not alter the position of the country bankers; nor did he see that they had any claim whatever to be placed in their former position. He had always thought the arrangement with the country bankers one of the best provisions of the Act; for while it forced no private bank to give up its circulation, it provided a machinery by which, in point of fact, they might substitute other paper for their own at advantage, and many of the country banks availed themselves of the option thus afforded them. But, after all, the most important point of those he had mentioned, was the second, which referred to the limitation of 282 the amount of notes which the Bank of England was allowed to issue. It was impossible to advert to this without bearing in mind what took place in 1847, and it was remarkable how very anxious the advocates of the Act were to get over the consideration of the events that occurred in that year. The right hon. Gentleman the First Lord of the Admiralty (Sir Charles Wood) told them last year that what occurred in 1847 was entirely to be attributed to the state of the commercial body; but he found that another advocate of the Act, in some remarkably lucid letters which had lately appeared, took another view of the matter. He attributed the events of 1847 not to the state of the commercial body, but, in a great extent, to the prejudice and want of prudence of the Bank Directors, who ought to have raised instead of reducing the rate of interest. But the writer made a mistake in the matter of fact. The Bank Directors did not reduce the rate of interest in 1847. They reduced it in 1846, acting upon the doctrine laid down by their friends, that they should look to their own reserve merely as bankers, and not to the amount of bullion. Accordingly, when they found their own till full in 1846 they reduced the rate of interest. At the same time they were entitled to do so, for the bullion was increasing in the Bank. The fault of the Bank Directors in 1847 was, that they did not in time raise the rate of interest, and when they did so they did it in a too gradual way. He believed that the Bank of England was administered as ably and as honestly as any public establishment could be, and he had no fault to find with it. With respect to the limitation of the issue of notes on securities to £14,000,000, the rest of the issue being based on bullion, he had never heard any reason assigned for that limitation. In some circumstances this was a great deal too much. The Chancellor of the Exchequer had told him that, under this system, the bullion at one time in the Bank amounted to £20,000,000, and when to this was added the £14,000,000 of notes on securities the effect of such an accumulation was to raise great expectations in the country, to inflate prices, give encouragement to speculation and the creation of new companies, all which was sure to be followed by a commercial crisis, and thus drive the country from one extreme to another. This was the result of having a fixed sum of £14,000,000 as the amount of the issue of notes on securities. They had 283 been told that, as a certain consequence of having this fixed amount of circulation, whenever the bullion began to flow out the notes in circulation would be diminished; but nothing of the kind had occurred. Take last year as an example. There was a diminution in the amount of bullion of £3,900,000, but the notes in active circulation stood at the same amount as before. There was no corrective for this in the existence of the limit. The truth was that in framing the Bill the fact was totally for gotten, that the moment money became more valuable that instant the Bank reserves were acted upon. The Bank of England had ceased to have any effect as regarded the circulation, and its operations were nothing more than those of any large Joint-stock Bank. He could not conceive how such a system should be thought advisable, or how the idea had been lost sight of that the rate of interest should be determined by the amount of bullion, and not by the state of the Bank reserve. He did not wish to go into details which would hardly be made intelligible, but the general principle in which we should proceed was something like the following: Do not allow the amount of notes issued on securities to be a fixed amount. Issue a certain amount, but let all above that be issued at given rates of interest, and let these rates of interest be determined by the amount of bullion in the Bank, making the amount of notes in circulation always to bear a proportion to the amount of bullion in the Bank coffers; if, for example, there should be two million of notes, let the minimum of bullion be at least one million, or some proportion of that kind. He hoped his right hon. Friend would not give up the appointment of the Committee, as it seemed that the Government had nearly made up its mind on the principle to be adopted in regard to the Bank charter, and perhaps something might transpire there which would lead him to change his mind on this question. He thought it was possible to improve the machinery of 1844 very materially. He had doubts whether the time had not come when all this machinery should be placed in other hands—whether the day had not arrived when we should have not Bank of England notes, or notes of Government circulation, but what might be called Mint notes, or something of that sort, with a more complete separation of the issue department from the Bank of England. Let it be an issue founded on the receipt of bullion by 284 the Mint, and they would then have a currency free from all chance of risk, and establish a system which would promote most materially the commercial interests of the country.
§ MR. HENLEY
hoped that the Chancellor of the Exchequer would divide the inquiry into two, dealing separately with the question of the Bank charter and that relating to Joint-stock Banks. The country took a great interest in both questions, but especially in the latter. It was highly desirable, as the Chancellor of the Exchequer had truly said, to reconsider the mode of winding-up Joint-stock Banks; but that was a matter different from banking, and one which ought to be investigated by different Members. On the Committee charged with the inquiry into Joint-stock Banks, they ought to have Members of the legal profession, who were well acquainted with the subject. It was a very intricate subject, upon which great difference of opinion existed, and it was desirable that legislation should follow the report of a competent Committee. Now, nothing could be more general than the terms of the reference to the Committee. The Chancellor of the Exchequer seemed to wish that they should not go into the operation of the Act of 1844 in 1847; but the terms of the reference would not exclude that year from the inquiry, and the right hon. Gentleman might depend upon it that when the Committee came together they would examine into the whole operation of the Act from the beginning to the present time. Well, that would open up no inconsiderable field of inquiry; the investigation would necessarily be a lengthened one; and in these circumstances, he would ask, was it fair or prudent to postpone the consideration of the Joint-stock Bank question till the fag-end of the Session, when everybody would be wearied out and legislation perfectly hopeless? At present the interest in the question of Joint-stock Banks and their insolvency was immense—much greater than that in the general subject of banking. Joint-stock Banks when prosperous were closely allied to banking; but directly they came to deal with insolvency the question then assumed a very different aspect from that of the Bank of England. He thought that, upon reflection, the Chancellor of the Exchequer would say that each of the Committees would have quite enough to do—probably as much as would permit them to report in time for legislation to follow during the present Session. He would 285 not at that moment offer an opinion on the Act of 1844, but he did not think that the labours of the Committee would be of a very agreeable nature if they were to commence their investigation under the notion that the Government had come to a conclusion—as might be inferred from the speech of the Chancellor of the Exchequer—with respect to the most material parts of the subject.
§ MR. MALINS
concurred with the right hon. Gentleman in wishing the Chancellor of the Exchequer to divide the inquiry into two. Considering the disasters which had taken place during the last few years, nobody could doubt that the whole question of Joint-stock Banks should undergo the most rigid investigation in regard both to management and mode of winding-up. The House was aware of the decisions which had recently been given in the case of the Royal British Bank, and of the misfortunes to which the shareholders in that concern were exposed. He hoped that the present Session would not come to an end without an enactment providing that after the winding-up of a Joint-stock Bank, or any Joint-stock Company, whether in the Court of Chancery or the Court of Bankruptcy, creditors should not be at liberty to sue individual shareholders. The proceedings in the case of the Royal British Bank were a disgrace to a civilised country. Debts had been bought up by litigious persons for the sole purpose of suing the shareholders. Now, if after the winding-up, the privilege of suing individual shareholders were abolished, and contributions to pay the debts of the bank or company obtained by means of calls, he had no doubt that the shareholders in almost every joint-stock concern would be found competent to meet all the demands made upon them. There was thus no necessity for suing individual shareholders. He believed it had been ascertained that the shareholders in the Royal British Bank were able to pay the debt three times over by the system of calls; but as long as they allowed shareholders to be sued by creditors, the consequent litigation would frequently cost more than the entire liabilities of the concern; and the shareholders, instead of meeting their responsibilities at home, would fly to escape the monstrous cost of legal proceedings. With regard to the main subject of debate—the Bank Charter, it was one in which he felt the deepest interest. He concurred in everything that had been 286 advanced by the hon. Member for Kendal (Mr. Glyn), and he had been disappointed with the speech of the Chancellor of the Exchequer, because, when he saw the notice on the paper, he did trust that the Members of the Government would enter upon the inquiry with minds open to conviction, or that if there was to be a Committee it would be one by which the subject would be fully investigated. But the Chancellor of the Exchequer had expressed his satisfaction with the Act of 1844, as being a piece of absolute wisdom; and, therefore, if the Government were to have a preponderance in the Committee, it would be vain to proceed with the investigation. He trusted, however, that when the Chancellor of the Exchequer went into the Committee he would be associated with men who had not so made up their minds; and, if that were so, the right hon. Gentleman would find that the question was not so simple as he appeared to imagine. One of the many surprising statements made by the right hon. Gentleman in the course of his speech was that the rate of discount had very little to do with the Act of 1844. Now, during the whole of last winter we had what might be called a money panic. It certainly had not been so bad as the panic of 1847, but it had caused great commercial embarrassment. The rate of discount, which since August had been as high as 7 per cent., was at the present moment 6 per cent, at the Bank of England. It was said that there ought to be a limit to the issue of banknotes. He was not prepared to assert otherwise. But the principle of Sir Robert Peel's Act was not to use the gold when we had it, but to lock it up. According to the Gazette of last week the amount of gold now in the Bank was in round numbers £10,000,000, which being added to the imaginary £14,000,000 mentioned in the Act, brought up the amount on which notes could be issued to £24,000,000. He believed that the public had in their hands rather less than £20,000,000, leaving reserved or unemployed notes to the amount of about £4,800,000. The Chancellor of the Exchequer had stated that in 1842 the gold in the Bank of England rose to £20,000,000, which added to the £14,000,000 of the Act, made a total of,£34,000,000. At that time the actual circulation was £21,000,000, leaving unemployed notes to the amount of £13,000,000. At that time the rate of discount was 3 per cent. Everything 287 rose in price; great facilities were given to trade; many new undertakings were launched. But the inevitable crisis soon arrived, and traders suddenly found themselves overwhelmed with interest at the rate of 6, 7, and 8 per cent. That was the rate of discount at the Bank of England; the amount actually paid by traders was much higher. When spending his Christmas vacation in the country he met a banker, doing considerable business, and asked him what his rate of discount was. His reply was, "I charge 3 per cent, more than the Bank of England." So that when the Bank charged 7 per cent. the trader and farmers in the country had to pay 10 per cent. Such a state of things was fraught with ruin to the trade of the country. The readers of the "city articles" of the journals, and particularly of The Times, must have observed the panting anxiety with which this great country waited the arrival of a vessel with £300,000 in gold,—as if the nation actually depended upon it to save it from bankruptcy. What was the meaning of that anxiety, and how was it to be accounted for? The answer was that it was not gold that the country wanted, but bank-notes. He would endeavour to make this clear. There was in the coffers of the Bank of England £10,000,000 in gold, and the notes in circulation were £20,000,000. Now, the minimum circulation of notes for the ten years previous to 1844 was £16,000,000; during the ten years between 1844 and 1854 it had never gone so low for any duration as £18,000,000; and he ventured to say that it would be impossible by any process now to reduce the circulation below that amount. In order to take the £10,000,000 of gold from the Bank, however, the circulation must be reduced, not to £18,000,000, but to £10,000,000. The public had in hand at the present moment—say, £20,000,000 of notes; and if the whole British community were to present those notes at once the Bank of England must necessarily stop payment, because the much-vaunted system which, according to the Chancellor of the Exchequer, it was impossible to improve, permitted £20,000,000 of notes to be in circulation when there was only £10,000,000 of gold to meet them. Sir Robert Peel, however, knew that the circulation never would fall so low, and he assumed that it would never be reduced to less than £14,000,000; and therefore he 288 allowed that number of notes to be issued upon imaginary security, every note being payable in gold, although there was no gold to meet it. It was impossible at this time to reduce the notes in circulation below £18,000,000; but, as the Bank was possessed of £10,000,000 of gold, the Bank could never be inconvenienced unless the circulation were reduced to £10,000,000; and therefore it was not gold, but bank-notes, that the country wanted. Then, as the Bank of England was compelled to buy gold at the rate of £3 17s. 9d. an ounce, people were anxious for the arrival of ships with gold, in order that they might take it to the Bank, and thus compel the issue of additional notes. His assertion that it was the deficiency of bank-notes which led to commercial disaster was borne out by what occurred in 1847, when we were upon the eve of a national bankruptcy. On the 25th of October in that year, when the celebrated letter was written, the gold in the Bank was £8,000,000, and the circulation was £21,000,000. It was impossible that there could have been any stoppage of the Bank, therefore, unless the circulation had been reduced to £13,000,000. There was no fear of that; but this difficulty might have arisen—that while there was £8,000,000 of gold in the Bank the Directors might not have had a single note to issue. The unemployed notes were then reduced to £1,500,000, and representations were made to the then Chancellor of the Exchequer (Sir C. Wood) that unless something were done there would be a national bankruptcy. Something was done; the Bank was authorised to issue notes beyond the £14,000,000, and by that means the difficulty was surmounted—a relaxation took place, and the rate of discount rapidly fell. He was surprised that the Chancellor of the Exchequer, with that example before him, should say that there should be no relaxation now, but that it would be better to leave these cases always to the extraordinary intervention of Government, preferring, as it seemed to him (Mr. Malins), the transgression of the law to leaving the remedying power within the law itself. It was said of those who did not approve the Act of 1844 that they were in favour of an inconvertible issue. Now, he, for one, could not be included in that list, for he did not see any occasion for the inconvertibility of the bank-note, for during the year 1847, and during the past year, the gold in the Bank had never been exhausted. 289 The effect of creating two departments, as the Act of 1844 had done, had been to lock up the gold, and to make the rate of discount to depend on the quantity of reserve notes, and the result had been that the commercial transactions of this country had never been in a satisfactory state when the reserve notes fell below £5,000,000; for if they fell below that amount up went the rate of discount, for the increase in the rate of discount was not occasioned by any scarcity of gold, but by the diminution of the reserve notes. The effect of those changes in the rate of discount, and the uncertainty with regard to them, was highly injurious to commercial transactions, for transactions commenced when the rate of discount was 3 per cent might not be concluded before it had risen nominally to 7, but in reality to 10 per cent; and so commercial men were deprived of the power of making accurate calculations before embarking in any enterprise. It was of the greatest importance to commercial men that the rate of discount should be well known, and that there should not be much fluctuation. Before the Act of 1844 it appeared from the evidence of Mr. Horsley Palmer, given before the Committee, that the maximum rate of discount seldom exceeded 5, and never was below 4 per cent; whereas, in the ten years ending at Christmas 1855, there had been no less than forty variations in the rate of discount, and in the year 1856 alone there had been nine or ten variations from a minimum of 3 to a maximum of 7 per cent,—a circumstance highly injurious to commercial transactions. The subject was one of the greatest importance to a commercial community, and he trusted that the Committee would not enter into the inquiry with foregone conclusions, but that they would remember that even Sir Robert Peel himself did not consider the Act of 1844 a perfect measure, and that they would not, like "Mercator"—the language of whose letters was most clear, but whose ideas appeared to be as confused as they possibly could upon the subject—start by looking upon all those who did not view the Act of 1844 as a perfect Act as mere idealists.
said, he quite agreed with the right hon. Gentleman (Mr. Disraeli) that if the Government had made up its mind on the subject of the Bank charter, it would have been much better that they should have proposed to legislate at once without any Committee, and intro- 290 duced their views to the House in the shape of a Bill. If, however, this was to be an inquiry, it must be a complete one, and therefore must occupy a considerable period of the time of the Session, and therefore it was most inexpedient that the subject of Joint-stock Banks, which required immediate legislation, should be mixed up with the totally distinct subject of the Bank charter. There were two great questions to be settled with regard to Joint-stock Banks, one as to their constitution, whether they should be based upon the principle of limited liability, the other as to the means of winding-up such Joint-stock Banks as unfortunately failed. He did not think that the preparation of a measure with respect to the winding-up of Joint-stock Banks was at all fitted to occupy the deliberations of a Committee, or that that was the best mode of arriving at a good measure. They all knew how difficult it was to agree on the draft of a measure when only two or three persons were to be consulted. How much would the difficulty be increased with the increased numbers of a Select Committee? It would be much better for one competent man to undertake the preparation of a Bill. The evils and the disgrace of the present state of the law were perfectly unbearable, and ought to be terminated as soon as possible. Let the Government then at once introduce a measure on this part of the subject on their own responsibility. With respect to the other question—the adoption of the principle of limited liability to Banks—he thought the Government had better bring in a Bill to apply the principles of limited liability to Joint-stock Banks, for he had yet to learn what reason there was for making an exception of Companies of this description from the general law applicable to the trading corporations. If, however, it was to be referred and considered by a Committee, it should be referred alone to a separate Committee. But if this and the preparation of a measure for the winding-up of Joint-stock Banks were to be referred to the Committee which had to consider the general subject of the currency, it was perfectly clear that there could be no legislation on these subjects during the present Session.
§ MR. LAING
said, the hon. and learned Member for Wallingford (Mr. Malins) seemed to be of opinion that the proper way to relieve the pressure now felt would be by an increased issue of bank-notes. At the same time he avowed himself to be the advocate of the convertibility of bank- 291 notes. It was difficult to see how these two propositions could be reconciled. Was it not plain that there had of late been a continued, drain of bullion from this country affecting the bullion in the coffers of the Bank, and that this pressure was continued with increased severity? Now, if money were temporarily made cheaper by issuing bank-notes, how could the drain be arrested? And if not, where was it to end? It was clear that it must at last bring us to the end of our stock of bullion, and then how was the convertibility of the note to be maintained? If it were true that the difficulty under which the country was now labouring was a deficiency of bank-notes and not a deficiency of bullion, how was the fact to be explained that at present the amount of bank-notes in the hands of the public, was positively more than at several periods when there was the greatest ease in the money market? To give one instance—the total amount of circulation in the hands of the public, at the close of the past year, when the rate of discount was 6 and 7 per cent, averaged about £40,000,000; and the circulation of the Bank of England was £21,000,000. Now take the period of the greatest inflation the country had ever known. Towards the close of 1846 speculation was rampant, and the rate of interest unprecedentedly low. What then was the amount of circulation? In November, 1846, the circulation of Bank of England notes was £21,425,000—within a fraction of what they had now; and the total circulation of the country was less than at present. Therefore the present pressure was not for want of bank-notes. The error arose from confounding the term "money." In one sense it meant an instrument of exchange; in another sense it meant capital, or rather that portion of the capital of the country which was available for commercial purposes. That was a very different thing from the total capital of the country, the great bulk of which was permanently invested in land, in the funds, or in mortgages, and persons holding that fixed capital would not be tempted to place it in Lombard Street at an interest of 6 per cent, inasmuch as in six months they might not get more than 2 per cent. It was the floating portion only of the capital of the country which was chiefly affected by the variation in the rate of discount. When they talked of money being abundant or scarce, they meant that, the amount of floating capital seeking 292 employment in discounting bills or in short loans, was redundant or otherwise. There was no way of meeting a superabundance or a scarcity of the capital thus employed but by adjusting the supply to the demand. If the demand were greater than the supply, money would be dear in spite of all they could do. When the supply was smaller than demand there was no way of restoring the equilibrium, except on the one hand by diminishing the demand, and on the other by increasing the supply. How could they do this? By increasing the rate of interest. It was true that this would not always effect the object immediately, but, in the long run, it could not fail to act on the one hand by diminishing the demand, and on the other by increasing the supply, because with a high rate of interest they would draw unemployed capital both from this and foreign countries into the market, and they also attracted some portion of that capital which under other circumstances would be in fixed investments. That he believed was the whole art and mystery of banking, to regulate the supply according to the demand. There was one point which seemed to him to require investigation before the Committee, which the Chancellor of the Exchequer, though he agreed with him in the main, had omitted. As regarded the Act of 1844 he did not think the facts proved that the theory upon which the Act was founded was altogether true. The Chancellor of the Exchequer had described it as being brought in simply and solely for the purpose of enforcing the convertibility of the paper money issued by the Bank. That might be true if they looked merely at the terms of the Act; but it was not true—not the whole truth, at least—if they looked at the circumstances under which it was introduced, and the operation it was intended to have by its promoters. Undoubtedly it was framed partly in accordance with a theory which said, if you regulate your circulation by a self-acting process, you may leave everything else to take care of itself, because the simple fact of your providing that your mixed currency of paper and gold shall be the same as one purely metallic, will be sufficient to keep you right. It was supposed that the first commencement of a demand for gold would necessarily act upon the circulation, and by causing contraction ensure the raising of the rate of interest to the proper point until the drain was arrested. 293 That was the theory of the school of which Lord Overstone was the leader, on which the Act of 1844 was introduced. It was a beautiful theory, and every one who paid attention to this subject for the first time began by believing it to be true, and ended by wishing it were true. But, unfortunately, it was not true, because, if they referred to periods of great prosperity, and periods of great depression, they would find there was no connection between the supposed cause and effect. The period of 1847 was a very remarkable one for the severity of the crisis. Between September, 1846, and October, 1847, upwards of £7,000,000 of bullion had been drained away, while the amount of banknotes in the hands of the public had remained almost identically the same; and if they looked at the circulation of 1852 and 1853, when money was abundant, and compared it with the latest returns, they would see that there had been no material variation in the circulation, although the rate of interest had varied from 3 to 7 per cent. Therefore the theory was not consistent with the facts. The effect of the Act of 1844 undoubtedly was to provide for the convertibility of the bank-note; but it made no provision on the other point—the banking reserve—upon the amount of which depended entirely the recurrence of those periods of commercial pressure. It was a matter of fact that it had not done so, and that the amount of the reserve depended now as much on the discretion of the Directors of the Bank as it did before the Act passed. The Act of 1844, in his opinion, in reference to the panic of 1847, had done mischief, because it produced a false confidence both on the part of the Directors of the Bank and the public, which led the Directors not to take restrictive measures in time, which they would have done if they had not thought that the Act would work of itself. Experience had exploded that error; the Directors had seen that a sound discretion was necessary and on the whole he thought they had, during the last few years, carried the country through a period of great trial and difficulty very successfully. He conceived that the whole question to be considered resolved itself into the question of the banking reserve. There appeared to him to be three points connected with this. In the first place the bank-note should be always convertible, which was effectually provided for by the Act of 1844, and therefore the Committee would not have 294 much to consider on that point. The next point they had to guard was the perfect solvency at all times of the Bank of England; he meant that it should not be under the necessity of dishonouring cheques or of not paying its depositors. The third point was, that it should have a certain power of supporting the credit of the country in periods of pressure and emergency. When he said the Bank should support the credit of the country, he did not mean that it should be bound to step in and assist every important house that had been trading imprudently and locking up its resources; but what he meant was that the Bank, having the power to issue notes to the amount of £14,000,000 on securities, which no other bank possessed; and having the public balances, that gave it a power which made it the basis of that commercial credit on which the operations of the country depended. If they analysed the operations of other banks, and money-lenders, they would find that they depended in the last resort on the assistance they could get with undoubted securities from the Bank of England. Therefore, if the reserve of the Bank fell to a low sum, that caused a panic. The public were afraid of an absolute stoppage, and that even on bills accepted by the very first firms or on Exchequer bills, they might be unable to get accommodation. That was the state of things in 1847, and it was to obviate it that the Government letter was written in that year. The panic in that year arose from the reserve of the Bank having run so low that, in order to save themselves, they were compelled, at any sacrifice, to restrict the great superstructure of commercial credit. The great problem was to prevent the recurrence of that state of things in which the reserve was run down so low as to make pressure become panic. Some of the suggestions with that view were that there should be an increase in the issue of notes beyond the fixed sum of £14,000,000 and the amount of bullion in the Bank. To that suggestion he could not agree, because he could not see how the mere issue of so many additional notes would increase the amount of available capital to be applied to these purposes in the country. It seemed to him that such a course would simply displace so much bullion, which would go away from the country, and if for instance they were to enlarge the fixed issue of the Bank by £4,000,000, the 295 result would simply be that instead of holding £10,000,000 of bullion there would be only £6,000,000. He apprehended the amount was fixed at £14,000,000 because in practice that was found to be sufficiently above the minimum point to which the circulation had ever been contracted, and they gave a valid security that the convertibility of the notes would never be risked by their being reduced below that point. His hon. Friend near him (Mr. Glyn) said they might issue £34,000,000 of notes, but, in point of fact, they could not get the public to take them. A circulation based on bullion could not be over-issued. The whole question merged itself into keeping up the reserve of the Bank as high as they possibly could. The Act of 1844, in periods of pressure like the present, when the reserve was inconveniently low, prevented them resorting to the issue department, and getting from it a portion of the bullion which was placed there for the specific purpose of insuring the convertibility of the bank-note. It seemed to him that the issue of that bullion to the banking department would not be a safe remedy to adopt, because he could see nothing to prevent the mischief coming back to them again. What was desirable was that they should, in periods of prosperity, accumulate a larger reserve, and that they should adopt their measures of precaution sooner, so that, when a drain commenced, the reserve should not be allowed to become too low. In short, the interest of the public and the interest of the Bank of England were not always identical. The interest of the Bank was to work with the minimum reserve which was compatible with solvency. But the interest of the public was to have a large reserve accumulated, when money was cheap, so as to keep panic at a distance when money became dear. This object could not be attained without some understanding between the Government and the Bank, to keep some extraordinary reserve of securities and bullion, which should be issued only in times of pressure at high rates. It had been suggested that there should be a discretionary power to relax the Act of 1844. He quite agreed with the objections that had been made to that, and wished to strengthen the reserve, not by dipping into the fund appropriated to secure the convertibility of the bank-note, but by the bonâ fide maintenance of a larger banking reserve. There were other questions in this matter of im- 296 portance as to the direction of the Bank. He did not agree in the suggestion that there should be Government Directors, because that would be throwing a responsibility on the Government which they would not be able to discharge; but there were some points as to the rotation of the Directors, which ought to be considered in order to secure good management. If, by appointing a Committee, they could do anything towards effecting these objects, he thought they would be doing a great service to the commercial community.
§ MR. JAMES MACGREGOR
was at a loss to understand in what way his hon. Friend would enable the Bank to hold a larger reserve without larger means, and he knew not how those means were to be provided, except by the removal of what was emphatically called the dead weight, by the payment of the debt due from the Government to the Bank of England. He was not one of those who had the slightest doubt of the propriety of providing, under all circumstances, for the convertibility of the bank-note into gold, but he expressed I his fervent hope that some means would be taken by the Committee to prevent a recurrence of such a state of things as occurred in 1847. That panic did not arise from the foreign demand for gold, but from domestic causes, and the moment it was known that bank-notes could be procured at the Bank of England, the panic ceased. He believed that the silent sacrifices made by individuals in that year in order to keep up credit had proved in the aggregate a serious injury to the country. What was required was more elasticity in the Act of 1844, and he trusted the Committee would turn their attention to this point. As no doubt the Committee would consider these matters he would not detain the House upon the subject: but he did hope the Chancellor of the Exchequer would agree to a separate Committee on the Joint-stock Bank question, with the view to devise some means by which those concerns which should unfortunately be compelled to wind up should be enabled to do so without those frightful difficulties, and expenses which were being incurred by the one now undergoing the process. He was of opinion that Joint-stock Banks ought to be placed upon a sounder footing than at present. From many years' consideration of the subject, he had come to the conclusion that if the principle of limited liability were applied to Joint-stock Banks it would be far 297 better both for the shareholders and for the public. He hoped the Chancellor of the Exchequer would see the propriety of appointing a separate Committee to consider this branch of the subject.
§ MR. POLLARD-URQUHART
said, he thought there were two separate points to be considered by the House in relation to the Act of 1844. First, was it adequate to maintain the convertibility of the note under all circumstances? Secondly, was it more than sufficient?—did it contain provisions which were unnecessarily embarrassing to commerce? He thought that the Act had made the convertibility of the note morally certain; but they should bear in mind the statement of Lord Ashburton, published at the beginning of 1848, viz., that no Act of Parliament could give absolute convertibility to the note, and be sufficient to meet all circumstances which might arise. It was almost morally certain that such crises as that of 1847, would sometimes occur. He thought that crisis brought on by the large importation of corn. It did not depend on the rate of exchange being adverse; for in the year of panic 1847, the Bank raised the rate of interest, which rectified the rate of exchange, long before the second panic commenced in September, October, and November. He thought he was justified in saying that at that period the convertibility of the note and the security of deposits would have been in no small danger if the Act of 1844 had not compelled the Directors to put on the screw in the months of October and November. Two crises had occurred previously to the passing of the Bank Act very similar to that of 1847; the first in 1839, when the scale of exchange had been turned against this country by a bad harvest. The Bank Directors then consulted Sir Robert Peel as to whether they should suspend cash payment they received answer to pay to the last farthing, and he believed they would have been in danger of suspending payment if they had not been greatly assisted by the Bank of France. Another crisis, which occurred in 1825, was caused mainly by the internal demand for gold, at which time Mr. Huskisson said that the nation was within an ace of dealing by barter. Yet, in the latter part of that year he believed that the rate of exchange was as much in our favour as in 1847. He was aware that there was one high authority who held that the convertibility of the bank-notes and the security of depo- 298 sits would have been and was as great, in 1847, without the pressure of the Bank Act of 1844. He was not of that opinion, and he was justified, by the assertion of the then Government of the Bank of England, who ascribed the good position of the Bank to the £8,000,000 of gold in their coffers which they would not have had but for that Act. He believed that the Act of 1844 had no more to do with the creation of the crisis of 1847, than Tenterden steeple had to do with the Goodwin Sands. That panic was caused by the drain of gold created by a bad harvest, and the failure in the potato crop. The Act of 1844 could no more be said to have caused the panic of 1847 than a moonlight shadow at which a horse might start could be said to make the way impassable. The Act of 1844 might in fact be said to pat the horse on the back, and make it feel that there was nothing to fear. He was aware that many people objected to the Act of 1844, because they thought it had created a great number of minor panics since 1847. There could be no doubt that misconception of the Act of 1844 aggravated the evils it was supposed to create, but it was no sound objection to the practical working of the Act to say that the misconception of those who did not properly appreciate its action had caused a certain degree of mischief. He thought it no small merit of the Bank Act, that it was a sensible barometer of the commercial condition of the nation. It instantly informed them when a screw was loose in their transactions or in the state of the exchanges. On the other hand a system of credit which would enable them to tide over periods of crisis without taking any steps to put their affairs on a sounder footing might last for a time, but it must in the long run bring about disaster and ruin. While he thus approved of the principle of the Bank Act, he did not pledge himself to the support of all its details. If, for instance, the minimum of the circulation had increased since 1844, he thought the limit of £14,000,000 might also be enlarged. Nor was the observation of the Chancellor of the Exchequer, namely, that such a step would only enable the Bank to keep a smaller amount of gold in their coffers, any answer to such a proposal; because if, while they secured the perfect convertibility of the note, they could add a couple of Millions to the circulation of the country, they would be conferring a benefit upon the mercantile community. At the same 299 time he trusted that the Government would never consent to any material alteration in a measure which had been found in practice to answer the purpose for which it was designed remarkably well.
§ MR. NEWDEGATE
said, it was generally admitted that the operation of the Act of 1844 had been to deprive the Bank of England in a great measure of its power of acting as a bank of support. That fact had been strikingly illustrated by the experience of 1847; when, but for the interference of the Government, the Bank would have been obliged to cease operations in support of commercial credit, by affording accommodation, although it had £8,000,000 of gold in its coffers. If, however, the Legislature determined, tacitly, but virtually, to confide to the Government the great and important privilege of infringing the Bank Act, and of so altering the value of money, and of all property, some provision ought to be made for calling Parliament together within a reasonable time, to pass an Act of Indemnity. He (Mr. Newdegate) thought that the objections of the hon. Member for Kendal (Mr. Glyn) to an absolute limit were hard to answer, but that if some limit upon the discretion of the Bank were deemed essential, that it would be highly advisable, after having assigned some limit for the issue of securities, to decide that when gold sank to a certain point the rate of interest upon discounts by the Bank should absolutely advance pari passu with the diminution of gold. The point, however, to which he wished particularly to draw the attention of the Government and of the future Committee was this:—By the Act of 1844, in lieu of making a payment to the Bank for doing the business of Government, Parliament placed in their hands the reserve notes, he meant the notes issued upon bullion, which were in excess of the immediate demand for active circulation, and told the Directors to go and trade with these notes in the discount market. This provision had given the Bank an enormous power in the discount market, including virtually that of deciding the rise or fall of the rate of interest; and, judging by the experience they gained in the panic of 1847, the Bank Directors found themselves bound to regulate the rate of interest in a great measure according to the amount of bullion in their coffers, especially when the amount of bullion sank towards £8,000,000. When their stock of bullion was large 300 the Legislature had given the Bank Directors a distinct inducement to foment speculation, and when it was small they were compelled to crush speculation, by varying the rate of interest. Now, would it not be wise to place a limit upon the power of the Bank to stimulate speculation when the amount of bullion in its cellars was large? This might be done, by enacting that the Directors should not discount or afford accommodation at any rate below, say, two or three per cent as a minimum rate of interest, or by legal provisions to the same effect. Periods of excessive speculation and commercial panic acted and reacted upon one another, and surely it was not prudent that the Bank should derive advantage from, and be supplied by the Legislature with power to encourage undue speculation. He acknowledged that the Bank Directors had, on the whole, exercised their discretionary power very wisely; but the present system served as a direct inducement to them to stimulate an undue spirit of speculation whenever the stock of bullion was very large, while at other times they avenged the very speculations they had before fostered unduly upon the commercial public, when there was a reaction, by raising the rate, of interest and even refusing accommodation altogether.
§ SIR CHARLES WOOD
Sir, I am anxious to set the House right upon one or two points of fact which have not been accurately stated by hon. Gentlemen who have preceded me. Before I do this, however, I must beg to disclaim having ever applied to my hon. Friend, then Member for Kendal, Mr. Tooke, or to other Gentlemen who hold his opinions, the term of "Advocates of the little shilling." It seems to me, nevertheless, that there is some discrepancy between the views of the hon. Gentlemen and the measures they advocate; for while they protest that they are advocates for the perfect and entire convertibility of the bank-note, the doctrine they put forward is inconsistent with the certain maintenance of that convertibility. Now, if the note ever should become inconvertible, the question of the restoration of the standard, after a period of inconvertibility of the note, to its former point, is sure to be raised as it was in 1819. I am not quite certain as to the precise plan which the hon. Gentleman the Member for North Warwickshire (Mr. Newdegate), once advocated in the House; but it was certainly that the sovereign or coin representing a pound should contain a 301 less amount of standard gold than it did before 1797, and than it does now: that is, in truth, the doctrine (the question) of "the little shilling." Now, let the House remember, how "the little shilling" question arose. After the suspension of cash payments, when the question arose of restoring the convertibility of the note, the question also arose as to the standard. Any course that renders paper inconvertible may lead to a state of things in which that question must be again urged, of not restoring the standard to the point at which it had before been, and of paying a leas amount of gold than had been promised to be paid, and I cannot but see that any course which leads to the inconvertibility of the bank-note, may raise again the doctrine of the "little shilling;" and to this extent, anything which does provide for the notes being at all times, and certainly convertible, has a tendency to raise the little shilling question again. The hon. Member for the Wick burghs (Mr. Laing) told us what wag the purpose of the Act of 1844. Now, this is not the first time that Gentlemen have undertaken to describe the objects of this Act; but I do not think it fair to say what the objects of the Bill were, except in the words of its authors. The hon. Gentleman says that this Bill was to be the remedy for all possible evils, which could arise out of the currency, but also that it was to prevent not only an over issue of paper, but also any excess of speculation, and the reaction consequent upon it. I say that no such doctrine was ever professed by those who advocated the Bill of 1844. I happened to take a large part in the discussions on that Bill, and I distinctly remember that Sir Robert Peel and every one that acted with him said, that it was impossible for any Bill to deal with rash speculations, and with the mismanagement of banking concerns; but that there had been super-added to those evils the mismanagement of the circulation, and it was these latter evils alone that the Bill was intended to remedy. The evils of excessive credit and mismanagement of banking concerns have occurred in all countries—in Holland, Hambro', and where every note is represented by silver or gold in the bank; in Belgium, and even in countries where no paper circulation existed. It is not necessary in order that banking mismanagement should take place that there should be any notes in circulation. The Bill of 1844 regulated the circulation 302 of the country, and its object was to put a limit and check to the possible mismanagement of the circulation. We are apt in discussing measures of this kind to forget what were the evils which were really complained of, and to what the remedies devised were intended to be applicable. In old times complaints were made that the issues of the Bank were subject to no rule or limit, but were left to the discretion of the Bank Directors. It is now thought essential by almost every one—including the hon. Member for Kendal (Mr. Glyn)—that there should be some limit or check or rule by which the circulation should be managed. I remember that two or three years ago Mr. Tooke advocated a rule different from that now in force, but which at the time would have been still more stringent. The hon. Member for Kendal has laid down a rule which I will not now discuss; but that some rule should be laid down has been the opinion of almost all persons who hold the convertibility of the note. The opinions of the advocates of the Act of 1844 was, that in order to secure the convertibility of the note, the joint circulation of notes and coin should vary in amount exactly as a metallic circulation should vary, and the object of the Act of 1844 was to ensure that variation. The mode of attaining this object was by authorising the Bank of England to issue a certain number of notes on security, that amount being a little under the minimum, which experience had shown to be always in circulation—and taking care that the rest should be represented by an amount of gold in the hands of the issuing department. The amount of the issues of country bankers was also paid. Hon. Members have been a good deal puzzled, and have frequently asked why the sum of £14,000,000 was fixed upon. I believe that the minimum amount of notes that had ever been in the hands of the public had been somewhere about £15,000,000, and the sum of £14,000,000 was taken as an amount below which it was improbable, if not impossible, that the notes in the hands of the public should sink. Circumstances may have so altered since that the circulation will never be under £18,000,000; but that must be determined by experience; the subject is one which may be fairly discussed. I agree with my right hon. Friend the Chancellor of the Exchequer and other hon. Members in thinking that not much benefit would be derived from 303 raising the sum above £14,000,000. A higher amount might, perhaps, be taken, without impairing the effects to be attained by the Act of 1844; but I believe that the sole advantage would be that an increased amount of so much gold which might he used in other ways would be set loose. Whatever advantage and economy there are in issuing notes instead of gold will be attained by fixing the amount a little higher, to the extent of that quantity of gold, but I do not think that hon. Gentlemen opposite would find that any greater laxity in the circulation would be attained. Hon. Gentlemen having entered upon the question of the rate of interest, I must beg leave to say, that in my opinion, the rate of interest does not, in the least degree, depend upon the amount of notes in circulation. That was shown when we went into Committee in 1844 by numerous witnesses, and it was stated repeatedly in the discussions which afterwards took place. I really thought that in these days everybody was convinced that the rate of interest on floating capital, available for loans or accommodation, depended altogether on the amount of such capital, which at any one time is seeking such investment. The floating capital of the country is sent up to London to be used in discount. The capital in London, for which its owners have, no more permanent employment, is used in the same way. If there is an abundance of such floating capital, the rate of interest is low; if, on the contrary, it is scarce, the rate of interest rises. The rate of interest, therefore, must depend upon the abundance or scarcity of available capital. I am almost ashamed to state what, in my opinion, is such a truism, but I am obliged to do so, because, whenever there is a discussion in this House, the proposition is denied by some hon. Gentlemen. I am rather astonished at what was said by my hon. Friend the Member for Kendal (Mr. Glyn) upon this point, for he says everything depends upon the notes in circulation, altogether excluding from his consideration the reserves of the Bank; and yet a few sentences afterwards told us that any demand for accommodation drew out the reserve of the Bank. Some hon. Gentlemen, on the other hand, take a contrary view, and look at nothing but the reserves; but I do not know what distinction can be drawn between the notes in circulation and those in reserve. The banking department of the Bank, acting like a banker, keeps a reserve of notes as well as gold, just as a 304 country banker keeps a reserve of notes, gold or silver. That reserve, in the banking department of the Bank of England, is a portion of the circulation quite as much as the notes and sovereigns of the country banker; nobody will say that the amount of a banker's notes in reserve do not affect his power of accommodation to his customers, and so nobody can say, that the power of accommodation of the Bank of England does not, in a great degree, depend on its reserve. A good deal has been said about the effects of the Act of 1844, which, it has been contended, produced the crisis of 1847. I believe that it produced no such effect. The real truth is, that it was produced by three or four concurrent causes, of which the first and most active was the great drain of gold required to pay for the vast import of corn; and, accordingly, the first failures were all amongst the speculators in grain. Moreover, it was shown by the witnesses examined at the time, that a baseless system of fictitious credit had sprung up in the preceding years, by which bills, principally from India, were drawn, against produce before it was shipped or even gathered, I believe. These bills were discounted, and rediscounted, and so kept afloat for a time. But there being nothing available, when this system came to an end, by which they could be discharged, failures to a lamentable extent were necessarily caused from want of funds. But this had nothing to do with the Act of 1844. Those who attribute the crisis to the Act of 1844, affirm that it restricted the issues of the Bank, and that everything depending, as the hon. Member for Kendal says, on the circulation—that is, in his sense, on the "notes with the public"—the diminution of those notes produced the distress and crisis. But what was the case with regard to the "notes for the public." At the beginning of October, when the crisis began to be severe, the notes for the public were not diminished by more than £200,000 from the amount at which they stood in July, when there was no pressure. How, then, can it be said that the Act of 1844 produced the crisis of 1847 by diminishing such notes? Again, it is asserted, the crisis was produced by the inability on the part of the Bank, owing to the Act of 1844, to give accommodation to promote trade. In the three months preceding October, 1847, the amount of accommodation afforded in the shape of discount to private persons was increased to the extent of between£6,000,000 305 and £7,000,000. The Act of 1844 could not therefore have produced the crisis of 1847, either by diminishing the amount of notes held by the public, or by diminishing the power of the Bank of England to assist private trade; because, in point of fact, the notes for the public were not diminished, and the accommodation to private trade was increased to the very large amount which I have mentioned. The hon. Member for Wick (Mr. Laing) said, that the word "money" is used in two senses, and I certainly believe myself that half the discussions which take place respecting the currency would be avoided if those two senses could be properly distinguished. Money, when that word is used for floating capital available for discount, is a different thing from money when that word is used to mean only circulation. It is true that gold coin is money in both senses; it is equally true that the bank-notes issued to the banking department on gold sent to the Bank of England in the shape of deposits is a portion of the fund available for discount; and, consequently, it is money in the sense of circulation, and money in the sense of floating capital. When, therefore, gold is exported from this country—and the notes issued on it are withdrawn from the Bank reserve—the amount of capital available for discount is diminished. People accordingly look, as the hon. and learned Member for Wallingford (Mr. Malins) has observed, at the reserves of the Bank as an index of the amount of floating capital available at a particular time (although they do not contain the whole of that capital), because it is the practice of merchants to deposit their gold in the Bank, and the amount withdrawn from the Bank reserves is so much withdrawn from the floating capital in the country; but it is not true that the floating capital of the country, or anything like it, is concentrated in the Bank of England. The rate of interest also of the Bank is an index of the rate of interest elsewhere, but the Bank cannot raise or lower it at pleasure. In ordinary times, as the rate of interest required by the Bank is high, people in want of accommodation go where they can obtain it at a lower rate; but at periods when the accommodation, which they have been in the habit of obtaining elsewhere, is diminished, they have recourse to the Bank, but of course they have to pay a higher rate. An hon. Gentleman has stated, that when the rate of interest at the Bank of 306 England is 6 or 7 per cent, the rate charged by country bankers is 9 or 10 per cent; but that is not because the Bank of England has raised its rate, but because money is scarce, and there is consequently a rise all over the country, in which, of course, the Bank of England takes its part. It will generally be found that the Bank rate of discount for bills is lower than that of private parties. I believe that the Act of 1844 is the best and the least stringent of rules that can be laid down, but I do not wish to enter into the discussion of that topic now. The variety of opinions which have been expressed is, in my mind, a sufficient reason for the appointment of the Committee, where the subject would be far better sifted than by a discussion in this House. A Select Committee, composed of Gentlemen of conflicting opinions, who examined the witnesses brought before them, is a fitter engine for the extraction of the truth in such a matter than this House, and therefore my right hon. Friend has done wisely in proposing the appointment of a Committee. With respect to the last part of the Motion, relating to Joint-stock Banks, I think there is great force in the objection to referring that to the same Committee as the one which would have to consider the Bank Acts, especially as Joint-stock Banks are not banks of issue; and I do not believe that my right hon. Friend would be disposed to insist on that part of the Motion, if it shall be the wish of the House that it shall be omitted from the present Motion.
§ MR. MALINS,
in explanation said, the right hon. Gentleman had attributed to him the recommendation that an additional £10,000,000 of notes should be issued. He was sorry he had made himself so unintelligible. His argument was that, with £20,000,000 notes in the hands of the public, and £10,000,000 gold in the Bank, they could not diminish the circulation so as to draw upon the gold. He did not suggest the issue of any new notes. His argument was to the effect that it was impossible the circulation could be brought down so low as to take away the gold from the Bank.
§ MR. SPOONER
concurred in the two last observations made by the right hon. Gentleman—namely, that there ought to be two Committees appointed to consider the two distinct subjects, and that this was not the proper place in which this subject could be properly discussed. The question 307 was one that should be delegated to a Select Committee, where there could be an interchange of opinion rather than a regular discussion. Holding that opinion, he was induced to abstain from making any observations in the early part of the night. He was willing to wait the result of the right hon. Baronet's Motion in Committee. The right hon. Gentleman had gone back to the year 1819, and consequently opened a great field for discussion. All the difference between them was the way in which every contract fairly made could be best carried out. He considered that the contract of 1819 was most unjust—it was such that it never had been carried out, and he would venture to say that it never would be carried out. He had a very high authority for saying so. He would take the right hon. Gentleman to a period still further back, which he (Mr. Spooner) remembered well, though he was not then a Member of that House. He had paid much attention to the debates that took place in Parliament in 1810 and 1811. As he had observed, he had a high authority for saying that the measure of 1819 was unjust, and the evidence he would quote was sufficient to prove its injustice. He remembered when Mr. Horner had moved his Resolutions, declaring that there was a great depreciation in the currency, and that it ought to be stopped; and when he went further in saying that a day should be fixed upon when the Bank should be required to return to cash payments, Mr. Vansittart, the then Chancellor of the Exchequer, denied that there was such a depreciation as was alleged, and a large majority of the House of Commons declared that the one pound note and the shilling, for all legal purposes, were identically the same. Both of those distinguished Gentlemen were met, perhaps, by the highest authority then on the subject. The late Henry Thornton observed, "You, Mr. Horner, are quite right in fact—there is a depreciation, and it ought to be marked; but you are decidedly wrong in calling for a day to be named upon which the Bank should return to payments in gold." Mr. Thornton further added, "I doubt whether the day will ever come when you will be able to return to the old standard. I doubt much whether you ever ought to do so. I doubt whether the question of justice has not passed over to the side of depreciation." Now, what was the effect on the country gentlemen of those days—upon all those who had estates to settle, or who were de- 308 sirous of charging them with liabilities for certain members of their family. If they had been told that at some future time the successors to their estates would be called upon to pay their charges in a currency greatly appreciated, which they were then told had never been depreciated, they never would have so charged their estates. The standard adopted in 1819 was far more stringent than that which previously had existed. There was then a double standard of gold and silver (expressions of dissent). Hon. Members were mistaken. Mr. Vansittart at the time said that the whole national debt might be paid in crooked sixpences—if so many could be obtained. They might say that he was speaking of what had occurred a great many years ago. He was merely tracing what had happened year after year. There was great distress in the year following 1819. In 1822 the distress increased so much that Lord Castlereagh brought in three express measures for the purpose of altering the Act of 1819. Lord Castlereagh said that that Act was sound in principle, but it had been carried out too rapidly. The object of the measures proposed was immediately to increase the number of bank-notes. What, however, was the result of those measures? They led to an elevation of prices and hollow prosperity. The panic of 1825 ensued, because gold coin disappeared. Notes were again pumped out, as in 1822. The measure adopted in order to remedy the evil had only the effect of inflating prices. Gold was again diminished in the country, and again adversity was the consequence. If they properly traced out the cause of those difficulties, he thought that they could easily apply a remedy against their recurrence. That was not the place, however, to state the remedy. He was sure they might establish a currency, which would do justice to all, which would confer permanent prosperity upon the country, and which would not be subject to those embarrassing fluctuations which had taken place for so many years. The right hon. Gentleman opposite had said that those on his (Mr. Spooner's) side of the question thought that the rate of discount was left entirely to the control of the Bank of England. Now, what they believed was this, that the rate of discount depended upon the supply of notes in the market. It did not depend merely upon the amount in the hands of the public. He asserted that they must deal with the 309 reserve in the hands of the Bank exactly in the same way as they dealt with notes in the hands of the public. The moment the public see the reserve beyond which the Bank could not go—that, for example, it had issued to within about £2,000,000 of the amount the Act of 1844 remitted, then immediately the demand upon the Bank increased, not for the purposes of trade or general circulation, but for hoarding, lest when they wanted it they should not be able to get it. The House could not have a clearer proof than the fact that when it was known in 1847 that the Bank was not limited to a given amount, that moment the demand upon it ceased. One of the professed objects of the late Sir E. Peel in 1844, was to prevent great fluctuations taking place in the value of money. Seeing the evils of the Act of 1819, a Bill was brought in in 1844 to amend that Act. He (Mr. Spooner) was old enough to remember what happened in 1819. Notwithstanding the eloquence of the late Sir R. Peel, by which at times he so bewitched the House, the more sensible arguments of that right hon. Baronet's father had convinced him (Mr. Spooner) that, though he had a very eloquent son, the son had a most sensible well-judging father. If the father's advice had been followed we should have rectified the currency long before this time, and have averted the evils which had since occurred. He (Mr. Spooner) wished to put this question to hon. Members. When the Bill of 1819 was passed, or even its "complement" of 1844, did they conceive that any gold would be found in Australia?—that some £157,000,000 of gold would be imported into this country, as the result of that discovery? Could they have contemplated under such importations that they would have been now uneasy to know whether it would remain or leave this country? He asked them could any sensible man say our monetary legislation was such as to warrant their trust and confidence? The fluctuations during the last twelve years had been as many as thirty-four, and there had been as many as ten during the year 1856. Was that a system upon which a commercial business could be carried on? An hon. Friend of his had asked that evening what was a pound. He (Mr. Spooner) defied any man making a bargain to say what a pound would be in two or three months. A man might enter into a bargain when the rate of interest was 2 or 2½ per cent, and, after making 310 his calculations upon that rate, find, by the time he was called on to pay the money, that the discount had been raised to 7 or 7½. And this would be the case so long as the restrictions imposed by the Bill of 1844 were continued, He wished it to be distinctly understood that he cast no blame whatever on the Bank of England, for he believed that establishment to be most honourably and ably conducted. He did not agree with those who censured the Bank, saying the directors, capriciously, sometimes made money cheap, and sometimes made it dear. The Directors could not help this, the law under which they acted was imperative; nor would it be fair, so long as the present restriction remained, to tell them that they should not employ their capital as well as they could. He only wondered that the Bank managed so well as they did. He believed that there were means by which real convertibility of the note could be secured and credit duly kept between man and man. But the system was one to be gravely looked into, and was peculiarly one for a Committee. He did, however, hope that the Chancellor of the Exchequer would not go into the proposed Committee with a full determination not to alter his views; but with a mind open to conviction, and a desire to hear everything that could be brought forward on the subject. He (Mr. Spooner) also hoped that the Committee would be composed of Gentlemen who took different views on the matter, so that the tribunal before which the question was to be tried should be an impartial one. If any other course were pursued he could have no hope of any result that would be satisfactory to the community at large or to the banking interests. The Chancellor of the Exchequer had referred to the last Report of a Committee of this House as one which supported the views which the right hon. Baronet had put forward; but that Report was carried by a majority of only twelve to ten, and he (Mr. Spooner) knew as a fact that two Members of the Committee who were unavoidably absent when the Report was adopted would have voted against it had they been present, so that in that case there would have been the vote of the Chairman only in favour of the Report. Then the Report of the Lords' Committee was a condemnation against the Bill of 1844. The House had heard the opinions given that evening by his right hon. Friend the First Lord of the Admiralty, but in a speech made in 1847, after 311 the issue of the Treasury letter, his right hon. Friend made use of these observations:—Considering the amount of deposits in the Scotch banks the shortness of notice, and the fact that the greater part of the funds were in securities that could not be easily realised, their (the Scottish bankers') applications for assistance became a very alarming feature.These were the bankers so held up and lauded by Sir R. Peel.
§ SIR CHARLES WOOD
The Scotch bankers did not make any application to Government. They applied to the Bank.
§ MR. SPOONER
True They had not applied to the Government; but they applied to the Bank, and the Bank applied to the Government, and that was pretty much the same. The present position of the Bank was this. They had in round numbers now £4,000,000 of reserve notes, and £9,000,000 of deposits. Suppose the drain of gold should go on increasing, and that half of the depositors demanded their money, what would be the result in the present state of the law? He did not say the Bank would be insolvent, for that would be absurd, as the Government owed them £14,000,000, which were in securities. What the Bank must do would be to ask the Government for its debt of £14,000,000 in gold. In conclusion, he would say he hailed the appointment of a Committee as the only way in which the subject could be fairly and impartially dealt with, and the whole matter justly determined.
§ MR. WILKINSON
The hon. Member for North Warwickshire (Mr. Spooner) has asked where we should have been if it had not been for the large importations of gold from California and Australia. I take leave to answer that we should have been a great deal better without them. They have added nothing to the wealth of the country, and promise great disadvantage. I for see considerable difficulty and distress as likely to fall upon the working classes of the country, by the advent of this gold, which will have the effect of raising the prices of the articles which they consume, whilst their wages cannot for some time be raised in like proportion. Now there were too points of the truth of which it was necessary that hon. Gentlemen should persuade themselves, before they could come to a right understanding of this question. One was that there was absolutely nothing to be gained from a paper circulation, except its economy and convenience:—the other, that a rate of 312 interest, whatever it may be, is paid for the use of capital, and not for the use of currency. It was singular that whatever might have been the short-comings of the Act of 1844, during the crisis of 1847, in the minds of its opponents, the whole cause of discontent, with it, in the present year, was that it was supposed to have had the effect of keeping up the rate of interest. But if interest was paid for capital only and not for currency, how could the Act of 1844, which affected the currency alone, have had anything to do with keeping up the rate of interest? His hon. Friend the Member for Wallingford (Mr. Malins) had said that the rate of interest was high because the Bank reserve of notes was low, and was low because the reserve of notes was high. But, here, he was mistaking effect for cause, and putting the cart before the horse. The fact was that the reserve of notes became low when the demand for capital caused the rate of interest to rise; and the reserve became high when that demand ceased, and the rate of interest fell. His hon. Friend the Member for Wick (Mr. Laing), with every other part of whose speech he entirely agreed, had found some fault with the Act of 1844, because it had not prevented the panic of 1847. The Act of 1844 was never expected, or intended, to prevent panics, but only to secure the convertibility of the bank-note, which it had effectually done. He Mr. Wilkinson believed that no legislation could prevent panics, which were due to the enormous credit system of this country, and would, no doubt, periodically occur so long as that system was maintained.
§ MR. MUNTZ
regarded the appointment of the Committee as one of the greatest "shams" ever proposed to Parliament. If the Act of 1844 was perfect, as the Chancellor of the Exchequer alleged, and required no alteration, of what earthly use could the Committee be, except to shift the responsibility from the Government to the House? Unless the Committee opened up the whole question, its proposal would be an insult to the country as well as to the House. It was absolutely necessary to investigate the subject of Joint-stock Banks, with a view to the passing of a more stringent law for the punishment of acts such as those committed within the last twelve months, which were a disgrace to any trading community; but a Committee to inquire into the Act of 1844, upon such a statement as that of the Chancellor of 313 the Exchequer, was nothing but sheer nonsense, and an insult to the nation. The object of the Act of 1844, as avowed by Sir Robert Peel, was to take away all discretion from the Directors of the Bank, the condition of convertibility not being sufficient to keep the Bank in order. The adoption of the limit of £14,000,000 was another great sham. That limit had never been approached by £1,000,000 in his recollection; and what possible effect could it therefore have on the circulation? The variations in the value of money in this country had never been so great, so frequent, or so injurious to industry as they had been since 1844. That was the great evil against which they ought to guard, and unless they did so all their legislation must be perfectly futile.
§ MR. HILDYARD
thought it was rather inconsistent in a Government which thought the Act of 1844 perfect to appoint a Committee to inquire into that Act; but as it seemed to be agreed that they should have a Committee, it was incumbent on the Government to constitute their Committee fairly. The nomination of its Members would, under the circumstances, be viewed with much jealousy, and if they were not impartially selected their Report would have no weight with the House, which would have to take the whole matter into its own hands again. What did they mean by a Committee on the monetary system? What was that monetary system? The system on which they interchanged the commodities which had to be changed by the community. If that were so, according to the doctrine of supply and demand which had been alluded to in the course of the evening, they would require to have one thing at one time and another at another time; and therefore it was to be expected that that which might have answered the requirements of trade ten years ago would be found very much behind them now. This was more especially the case in regard to ten years such as the last, during which the exports of this country had doubled. Great stress had been laid by the First Lord of the Admiralty (Sir Charles Wood) on the panic of 1847, and the right hon. Gentleman had mentioned that the circulation had slightly decreased during that period. Now he (Mr. Hildyard) would mention a circumstance which tended to throw light upon some of the operations of the period. On the Tuesday after the letter of the Council came out, a wealthy man in the City went 314 to a broker and directed him to buy Consols to the amount of £10,000, observing at the same time that he thought things had seen the worst. He handed the money to the broker in large notes, which were each cut in two. The broker asked him how it happened that they were cut, and the gentleman replied that he had kept the halves in his banker's and retained the corresponding halves himself, fearing to trust the notes in their entirety to the bankers. It had been stated to-night that the legitimate mode of checking a drain of bullion was by raising the rate of discount, and he (Mr. Hildyard) was not prepared to deny it; but let them not lay too much stress upon the efficiency of that as a remedy, for he remembered before the Bank had that engine in their hands, the fluctuations were much less than they had been ever since. It was the bounden duty of the Chancellor of the Exchequer to take care that, the question being one of the deepest interest to the country at large, the Committee to be appointed should fairly represent the intelligence of the various interests of the country. Let him do that, and whatever might be the result of its inquiries the feeling out of doors would be one of satisfaction. On the other hand, if the Committee were not fairly constituted, much dissatisfaction would be created, and when its Report came to be considered this House would have to open and debate the entire subject.
§ MR. INGRAM
expressed a hope that, if a Committee be appointed, the present management of the Bank of England of the public debt would be taken into consideration. The charge to the public he conceived to be excessive, and the system adopted by that establishment for the payment of the dividends the worst possible. The allowance to the Bank of England for the management of the public debt was, for the last year, £247,000, being on an average a charge of nearly £1 to each person holding stock in the public funds. According to the returns for the year 1850, being the last in his possession, it appeared that the number of persons holding stock was 269,736—the debt itself being under £800,000,000. It was true that in those returns the Bank of England did not appear to receive so much for their management of the public debt, inasmuch as they refunded £180,000 for the privilege of issuing bank-notes. He, however, had no doubt that there were plenty of Banks in England that would be glad to 315 pay even four times that amount for the enjoyment of a similar privilege. The trouble and expense attendant upon the system pursued in the establishment were enormous, and even led to considerable frauds. A person holding stock must attend personally at the Bank of England, or incur a large expense in giving a power of attorney to his banker or agent to receive the dividend. Now, let them but compare that system to the one adopted in respect to similar monetary transactions. He would take, for example, the payment of the dividends on railway stock. He had received from Mr. Watkin, the manager of the Manchester, Sheffield, and Lincolnshire Railway Company, a statement of the cost of payment of their dividends for the last year. It amounted to £125 13s. 2d. The capital was about £9,000,000. The number of shareholders, 4,900. The expense, therefore, of the payment of the dividend averaged only 6d. per shareholder, and the mode of payment was much more satisfactory to the shareholders. That expense, however, did not include any of the charges attendant upon transfer, which he calculated would be on an average 1s. additional; therefore the whole charge to each person might be put down at 1s. 6d. He had also another return from the Midland Railway, which gave precisely similar results. If any new arrangement be made with the Bank of England he hoped that these facts would be taken into consideration, and that a better bargain would be made for the public, and a different system adopted for the payment of dividends. He might observe, in conclusion, that he objected to the granting of a new charter to the Bank of England. It was quite time, he thought, that the State should take into its own management the issuing of its own notes and the payment of its own debts.
§ MR. ALEXANDER HASTIE
thought the Chancellor of the Exchequer had made a great mistake in inferring from the non-receipt of answers to the six letters which he had written to the Scotch banks that the operation of the Act was satisfactory to the bankers of Scotland.
THE CHANCELLOR OF THE EXCHEQUER
My hon. Friend misunderstood me. I said that I had received replies, and that they all stated that the operation of the Act was satisfactory.
§ MR. ALEXANDER HASTIE
could guess, then, to which banks the right hon. Gentleman had written. His letters could 316 only have been addressed to the chartered banks, all of which possessed monopolies to a certain extent, and were satisfied with the operation of the Act; but the other Scotch banks were greatly dissatisfied with the position in which they were placed by it. In 1853 five of the unchartered banks presented a memorial to the Treasury, complaining of the evils under which they were suffering; and in the Session of 1855 a Bill was introduced into that House, which received a second reading, for the purpose of removing some of those evils. The Act of 1845 restricted the operation of charters granted to banks to twenty years. The consequence was, that no one of the banks knew what the state of their affairs really was: they were consequently obliged to shut up their establishments. Then, again, the unchartered banks could not hold securities. The result was, that not only were the people of Scotland dissatisfied with the state of the law, but their uncertainty was such, that since 1845 no new bank had been established in Scotland. He was far from wishing to say a word against the chartered banks, but the other banks were equally respectable, equally well managed, and equally entitled to the privileges of a charter. The Scotch banks generally had great reason to complain of the present system, and he hoped, therefore, that the Chancellor of the Exchequer would take care that Scotland was sufficiently represented on the Committee.
§ MR. CROSSLEY
said, he was glad to find that the Chancellor of the Exchequer had consented to the appointment of two Committees instead of one: that on Jointstock Banks would require the legal Members; but for the Bank charter they would want commercial men. There were two reasons why the charter ought to be investigated—first, the enormous increase of trade since 1844; and next, that from this increase the prices of all raw materials had risen immensely, so that the same amount of business required a much larger capital. Some Gentlemen seemed to think that an alteration in the charter would be a panacea for all the evils complained of; but so long as the Bank was bound to pay sovereigns on demand, it would be obliged to raise the rate of discount whenever the gold was going out of the country. There was one remark of the hon. Member for Kendal (Mr. Glyn) which he thought worthy of consideration—namely, whether it would not be desirable to take 317 away the power of issue from all banks. The Chancellor of the Exchequer said that the Bank of England paid £120,000 per annum for the privilege; but on an issue of £14,000,000, there was a profit, at the present Bank rate of 6 per cent, of £840,000 per annum, which, together with the profit on the issue of all other banks, he considered ought to go to the reduction of the taxation of the country.
§ MR. CAYLEY
expressed his satisfaction at the candid and dispassionate manner in which the discussion had been conducted, observing that when he first occupied a seat in the House only one set of opinions was allowed to be expressed on this subject, and any one who dissented from them was almost cried down. The hon. Member for Glasgow (Mr. Hastie) had said that the Chancellor of the Exchequer, in making inquiries with respect to the state of the law relating to banks in Scotland, had applied almost exclusively, if not exclusively, to the Scotch bankers. Now, he (Mr. Cayley) had always thought there were two parties interested in this question, the bankers and the public; and the interests of the public certainly deserved full consideration. He thought the hon. Member for Kendal (Mr. Glyn) had evinced great disinterestedness in the course he had adopted upon this question, although he could not concur in the hon. Gentleman's suggestion that Mint notes should be substituted for those now existing, as such a change would necessarily involve a more entire correspondence between the circulation of the country and the bullion in the Bank. Under the present system the banks obtained a large amount of profit. If they referred to the dividends declared by Joint-stock Banks they could not come to any other conclusion than that the present system was profitable to banks in general; but he thought the public was the party whose advantage they should keep chiefly in view when they were legislating upon this subject, for surely money was made for commerce, and not commerce for money. Some persons, however, argued the question as if that position was entirely reversed. The Chancellor of the Exchequer in his opening speech bad seemed to intimate that the Committee appointed to investigate this subject in 1848 had reported in favour of the Act of 1844, at the same time ignoring the fact, until he was reminded of it, that the Committee of the House of Lords reported directly against the Act of 1844. 318 Now, what was the fact? He (Mr. Cayley) was a Member of the Committee of 1848, and seventeen witnesses were examined before that Committee, including not only men of the largest mercantile and general experience, but persons who were thoroughly acquainted with the whole circuits of commerce—the great bill-brokers for instance, among whom was Mr. Samuel Gurney. Only four out of those seventeen witnesses were in favour of the Act as it stood; and who were the four dissentients? The Gentleman who was Governor of the Bank of England at the time the Act was passed, Lord Overstone, and the Governor and Deputy Governor of the Bank in 1848. His hon. Friend the Member for Whitehaven (Mr. Hildyard) had expressed a hope that the Committee would be fairly composed. If it was a fair Committee, he (Mr. Cayley) could only say that he believed it would be the first fair Committee that had ever been appointed to consider a subject of this nature. During his experience he had seen a good many packed Committees, and he knew how much adroitness was applied to their constitution. Great discretion was used in making a Committee appear perfectly fair; but good care was taken that there should be such elements in the Committee as would suffice to turn the scale in favour of particular views. He hoped, however, that the Chancellor of the Exchequer would endeavour in this instance to nominate a really fair Committee, for it would be the duty of that Committee to investigate some points of the utmost importance to the country. It was surely a matter of great importance to ascertain the reason why the commercial body was so perpetually harassed by constant changes in the rate of discount. One of the great desiderata in a medium of exchange was, that it should be as nearly as possible of uniform value. As it was of essential consequence to commerce that the yard wand should be always of the same length, so it was important that the legal tender should, as far as possible, maintain a uniform value; but it was impossible under the present system to maintain that uniformity. Reference had been made to "the little shilling" and "the little sixpence." What he (Mr. Cayley) objected to mainly was having a little shilling today and a large one to-morrow. What was wanted was a legal tender of steady value. They had in this country frequent commercial catastrophes and periodical pros- 319 trations of the mercantile interest, and it was taken for granted that they were natural results. He believed, however, that they were entirely the consequences of legislation. If the amount of gold in the Bank under the Act of 1844 was excessively large, as it was in 1852, when it amounted to something like £20,000,000, the Directors, in order to employ their reserve of notes, were obliged to go into the discount-market and compete with the discounting houses, and it was obvious that such operations of the Bank—the greatest money lender in the country—must produce a very great effect upon the rate of discount. When the amount of bullion increased, the Bank went into the discount-market and lowered their rates. The billbrokers and other hankers were consequently obliged to lower their rates, which were occasionally so much depressed that in one year since 1844 the rate of discount fell to 1 per cent. When the rate of discount was so low, holders of money, in order to gain additional profit, were induced to run unusual risks, and a reckless system of speculation was engendered. All the money which was taken at the low rate of discount was used more or less in the employment of labour; wages rose, consumption increased, and consequently prices were also raised, rendering this country the best market in the world for imports; but exports diminished in proportion. In other words, when prices rose here it was a good market for the foreign seller but a bad one for the foreign buyer. If they wished to have the financial history of the country since the peace, in a few words it might be told thus,—that on five or six different occasions prosperity drove gold abroad, and ruin brought it back. The only mode of getting back the gold was to lower prices in this country by raising the rate of interest, diminishing the period for which discount was allowed, and rendering it virtually impracticable for the general public to obtain possession of bank-notes. The consequence was that goods were forced into the market for sale at ruinous prices. These ruinous prices brought in the foreign buyer with his gold. Thus was bullion restored. This recurrence of periodical convulsions in trade and commerce was not natural, but a consequence of our artificial system. The public, seeing that such convulsions usually followed a drain of bullion, watched with painful anxiety the working of the screw by the Bank 320 of England; were full of apprehensions when it occurred, and no one could be surprised that they were so. There were probably, at all times, at least £200,000,000 of bills outstanding, all legally convertible into bank-notes or gold. What, then, must be the apprehension in the commercial mind when it saw the reserve of the Bank—the practical source for effecting this conversion—reduced to £3,000,000 or even £2,000,000? Could it be wondered at that panic was the consequence, or that the public sought relief from such a state of things? He hoped, therefore, there would be a fair inquiry, with a view, if possible, to the discovery of a remedy for the evils of the present system.
THE CHANCELLOR OF THE EXCHEQUER
I will not trouble the House with any remarks in reply to the various questions which have been raised in the course of the evening, but will confine myself to one or two observations with respect to the Committee which I have proposed. I must say I was under the impression that it was the general wish of the House that there should be an inquiry. By the Act of 1844 the privileges of the Bank of England could not be interfered with for a period of ten years: viz., till the end of 1855. The Act declares that it shall be lawful, after notice given in this House at any time after 1855, to take steps with a view to putting an end to the privileges of the Bank of England. The beginning of last year was therefore the first time the question of these privileges could be raised, and a Motion was made in this House on the subject before Easter. I then stated it as my opinion that a time of war, when the country was placed in extraordinary and exceptionable circumstances, was not a convenient period for entering into the consideration of the question. The House was divided on the Motion, when a majority concurred in the views which I had expressed. Later in the Session a question was raised as to the appointment of a Committee of Inquiry; I then stated that if it was the wish of any Member to propose a Committee, and if he brought forward a Motion to that effect, I would have no objection to his doing so, though I thought it too late in the Session to be of much practical importance. No Motion was made; and on the last day of the Session I stated, in reply to a question, that I could not say whether or not it was the intention of the Government to propose a 321 Committee when Parliament again met. Whereupon an hon. Member (Mr. Tite) gave notice that he would himself move for a Committee. I was, therefore, under the impression that if I had moved for leave to bring in a Bill on this subject without any inquiry, another Motion would have been made for a Committee, to which I could not have stated any objection; and therefore I have thought it proper to take the course which I have now done. I will only remind the House that in 1810 there sat the celebrated Committee on Bullion, presided over by Horner; in 1819 the Committee on Cash Payments, presided over by Peel; in 1832 the Committee on the Bank Charter, presided over by Lord Althorp; besides a Committee on commercial distress in 1848, presided over by my right hon. Friend (Sir C. Wood). I have only to say that, though my own opinions on this question are to a great extent made up, it has appeared to me to be a fair matter for inquiry by a Committee of this House. I think there are grave objections to the Committees, as has been suggested; but I shall have no objection to omit from the Motion the words relating to Joint-stock Banks, and limit the inquiry to the Bank Act of 1844.
§ Motion agreed to.